Remarks prepared for delivery by:

Henry A. Schimberg
President and Chief Executive Officer, Coca-Cola Enterprises Inc.
To the Coca-Cola Leadership Conference
San Francisco, California
July 28, 1999

Thank you.

Do any of you remember this illustration?

[Visual 1: Famous New Yorker Magazine cover showing midtown Manhattan as the only civilization… rest of world is depicted as scattering of distant afterthoughts.]

I remember seeing that years ago and thinking they really blew it … I thought everybody knew that this is the way it really was.

[Visual 2: Takeoff on same style, showing CCE as center of universe, with The Coca-Cola Company close by and a few small "bottlers" in the distance.]

Maybe your perspective was more like this.

[Visual 3: Takeoff on same style, showing "My Bottling Company" as center of the universe, with Atlanta in the far distance, and a few important customers scattered around the landscape.]

That was how it really was. Or so we told ourselves.

Is it? Is there a chance this view's wrong, too … not to mention arrogant?

I think so. In reality, the world looks a lot more like this today.

[Visual 4: Takeoff on same style, showing "Customer" as center of the universe, with bottlers and TCCC equally prominent in landscape.]

A new landscape dominated by big customers. They're sophisticated. Demanding. Capable. They operate across territories. Dictate their own requirements … which change every day … and so do we, to keep them happy. Or at least we'd better.

Allow me a brief detour for a moment here. This is my last talk to you. I'm leaving the company after 18 years of rewarding work. But I owe you a word of caution - I'm not feeling particularly sentimental.

I didn't come here today to join hands and lead the group in a rousing rendition of "Kum-ba-yah." We don't need - you don't need - a pep rally.

What this group needs is a heavy dose of reality.

Well [gesture to visual] … here it is.

Standing up here today … in my last speech to this group … I think back on all the visuals I've used over the years. I must've used ten thousand charts and graphs and summary slides during my career.

But none of them is as important as this one.

I hope you remember it. Because your future comes down to how you see the world.

Our bottling companies aren't the center of anybody's universe any more. They don't stand alone. If they act that way, they'll be quaint for about 15 minutes … and then they'll be gone.

They'll be gone the first time they act like petulant children … acting like part of the system today, when circumstances suit them … then acting like independents tomorrow, when circumstances don't.

The Coca-Cola system … no matter how powerful … can no longer create value with autonomous bottlers.

That model is outdated. That world is gone. We have no choice. We have to change.

Most of us acknowledge that. We see that the balance of power has shifted. We know our customers have consolidated to the point that they call the shots. And you know what? That's not bad. We've been through changes before. Part of our customer's success is our own doing.

But some of us still aren't buying it. You know who you are. Swimming against the current … it gets tiring, doesn't it? Fighting change is the most exhausting thing we can do.

My hope for this meeting is that we'll leave San Francisco dedicated to the future. Not fighting the present with structures of the past. But building a new structure.

Maybe a quick history lesson will illustrate my point.

The Chaldeans (kal-DEE-uns) were an ancient Mediterranean culture who built the world's first bridge, in Mesopotamia centuries ago. Actually, I should say they were first people to try to engineer a bridge … as opposed to laying trees across the water.

It took them several tries to get it right. First, they got it wrong. Spectacularly wrong.

They saw that a good bridge needed some system of support. Their first mistake was to sink their supports right in the river's current. When the river rose, the stanchions were washed away. So they built bigger stanchions. Eventually, even the bigger wooden stanchions eroded.

Finally, they built a huge stanchion … in effect, a dam. This time … when the rains came and the water rose … the entire bridge was washed away.

That's when they finally figured it out - you can't fight the current. And their next supports were built on land. And that led to arched bridges … box bridges … suspension bridges … in other words, bridges built on systems that share and distribute the load. Bridges that lead across the current of change - not fight it.

The lesson is simple. You can't resist powerful forces by stubbornly standing in a rising tide. You have to rise above it … and work with others.

We need to be honest with ourselves. There are sizeable gaps between our system today and our customers' expectations for value. Those gaps include our capabilities … technical and human … but they're also in the form of the stanchions we've built in our own imaginations. They're not supports any more. They're dams. They're eroding. They're coming down.

Well, let them. The future isn't in fighting the inevitable … in resisting our customers' power. The future's in building bridges that make their commerce easier and better.

That bridge is us. Our system. Our people, our brands, our service, our marketing. All the support and value-enhancing advantages we offer our customers. To live up to our heritage, they've got to be strong. Easy to reach… easy to cross … and most important, built from a unified Coca-Cola system that's better prepared than ever to create … nurture … and enhance value.

In my way of thinking, there's no longer an option to that strategy. How strongly do I feel about this? I like what Peter Drucker, the respected management guru who has been called a philosopher of reality, once said: "You don't have to do this," he said. "Survival is not compulsory."

The new reality confronts us everyday.

Let's say one of today's chains … let's call it Big & Pushy … decides it wants to run an ad promoting a special on Coca-Cola classic for an upcoming holiday. The only problem is the ad covers stores in three bottler territories.

So, potentially we have three different perspectives from three different bottlers on how the retailer should work with us. Those opinions include six different packages and 10 unique brands that must be figured into the equation … and approximately 72 different hoops the retailer must jump through if he wants to do business with us.

In the old days - we can't really pinpoint when the old days ended, but surely we can see they have - we would've tried to work through this mess with plate changes and a slew of brand and package combinations. A series of heated discussions would have ensued between the bottlers involved. And the retailer probably would have stood by and let us dictate how he was going to work with Bottler A, Bottler B and Bottler C to get his ad placed.

Well, I can tell you, the Big & Pushies of the world aren't standing by anymore while we argue among ourselves. They're telling us to come back when we have our act together. And, meanwhile, our competitor is anxiously waiting to make life easier for the customer. He does it by having one person calling on the retailer and saying simply, "Tell me what you want."

You might say, well, that's an example of just one situation and dismiss its significance. Well, what if Big & Pushy is part of a huge national chain? A chain whose shelves we need to help solidify POWERaDE and Surge as national brands.

So Big & Pushy's business is critical not only to the three bottlers in the example, but also to the Coca-Cola system itself … for volume, share and profitability reasons … as well as for brand health reasons.

That example emphasizes two key points … neither of which is going to cause a warm and fuzzy feeling to come over this room.

The first is that the day of franchise territories acting independently without affecting other franchise territories doesn't exist anymore. The effects of any major decision or action now commonly ripples throughout the system.

To deny that … and to continue to try and separate ourselves from the system when it is to our advantage to do so … is like Luxembourg in World War II saying, "You know, we have a nice little country here, and we think we're just going to sit this one out."

That's fine until the troops come marching down main street and all of a sudden everything you worked for … everything we all worked for … is in danger of being taken away.

So, ultimately, the issue of franchise value must be considered. At some point, The Coca-Cola Company will no longer have the option … or the ability … to tolerate conduct detrimental to the good of the overall system.

The second key point is an admission we need to make.

While we have an unbelievably strong trademark and brands, the customer believes he can survive without them. Can he find value from the competition at anywhere near the level we can deliver? Of course not. He probably realizes that, but that doesn't change his mind about the value he requires from the beverage category. The sun will come up for him tomorrow … with or without Coca-Cola.

What we've been hearing all day is that customers are requiring more from us. And they aren't afraid to ask for it. We've heard a lot about what they're asking for. Electronic commerce … brand availability … just-in-time delivery and high turnover … consistency in the programs and services we deliver across their markets … advice … expertise.

In the end, they want the same thing we do - more value. And they intend to get it. The question is, are we prepared to deliver?

Anchor bottlers give us resources to counter these increasingly complex requirements. But that, in itself, is not enough. We must remove all barriers to meeting customers' reasonable requests.

I'm not saying we should roll over on every demand. That's not productive. I'm not saying everyone's viewpoint should not be acknowledged. It should.

What I am saying is that we have to face issues as a system rather than arguing about them on a case-by-case basis every time we face a major issue.

That certainly qualifies as a paradigm shift. I know that's an over-used and misused term these days. The term "paradigm shift" was coined with almost mathematical precision to describe a point in time when an old model, while still accurate, is no longer sufficient for the needs at hand.

The paradigm shift that has to take place here involves transforming our traditional independent bottler network … still the basis of the world's most effective distribution machine … into the world's most efficient and effective customer value creation machine.

That entails, among other things, adopting a mindset that builds consensus and fosters long-term health and value for the system.

Removing barriers to value creation starts with understanding value on the customer's own terms. Value to one retailer might be a 10 percent margin … to another value might be a two-for-five dollar price on a 12-pack for a holiday promotion.

Reaching this understanding requires an ongoing dialogue with the customer … one that obviously includes price … but one that should not be dominated by price. We need to understand customers' businesses well enough that we can engage them on their biggest issues and problems . . . and help them find solutions.

And we need to hold ourselves … and our people accountable. It really doesn't matter who has these conversations. What matters is that we have them … and that whoever has them understands value creation.

Remember, with the new generation of customers, it's not only about transaction management . . . ad calendars … displays and cooler placements. The real future dialog is about value creation, making money and providing value-added services.

At CCE, we're trying to remove as many barriers - physical and mental - to customer value creation as we can. Let me give you an example of how changing a mindset - a paradigm shift -- has allowed us to enhance our relationship with Compass. We're going to hear from Mike Bailey from Compass this afternoon so I'll be interested to hear Mike's perspective on this.

When we decided to make a commitment to the at work foodservice channel, we recognized that the most profitable way of doing business in the channel was in places where we already controlled the account. We looked at distributors -- people like Canteen, a division of Compass -- as competitors. In fact, we should have been looking at them as potential partners.

So, rather myopically, we said to ourselves that third parties and contract foodservice didn't fit our business model. That kind of thinking was something akin to continuing to invest in buggy whip companies while millions of people were falling in love with the automobile.

We were closing ourselves and our products off to literally millions of employees at thousands of work sites.

But once we admitted that the competition was eating our lunch in the at work channel, we said maybe those distributors weren't such bad guys after all. Well, as it's turned out, Canteen is a bunch of wonderful guys.

I don't mind admitting that at first there were differences of opinion within our company about this strategy. Some people thought, "If we can't own it, we're not going to be there." But we knew that in order for us to fulfill our vision of pervasive availability, we didn't have the option of turning our back on this opportunity.

Compass is now acknowledging the value we can bring them and their customers. And by effectively activating this channel through the Compass relationship, we have an opportunity to accelerate system growth well into the next century.

When we bring significant value to the customer … when we're perceived as the organization that best understands their needs and the one best able to respond to those needs … we have an opportunity to move to a position of Category Management.

Category Management makes us an active participant in the customer's strategic conversations and plans regarding value. If we're not at the table for those discussions, we lose a major opportunity. Category Management also shifts the balance of power at least slightly back in our favor.

There was probably a time when we could afford to lose an opportunity here and there and still exceed every goal we set for ourselves. That time is no longer.

Our world is changing at such a pace that it hardly resembles what it did five years ago. And, at the current rate, we probably won't recognize it five years from now.

Those changes - driven primarily by industry consolidation -- give us a limited window of time in which to change our own attitudes and behavior. There is an absolute sense of urgency that cannot be ignored because we're not operating on our own timetable. Our customers' have the stopwatch in their hands. And they view the status quo as absolutely unacceptable.

That goes for every category - but especially for the beverage category, where so much of their profitability resides.

If we're viewed as unresponsive to their needs … if we're not able to close the gaps … if we're unable to create effective bridges to value … everyone will suffer.

This has been my last opportunity to be with you, my second family for the last 18 years.

If I've used what sounds like strong language, it's because I have strong feelings.

I love this system. I love the people who have made it great.

I only want to see it continue to thrive at the pinnacle … the position we've worked so hard to achieve over the years.

Let me leave you with one final thought … since we're speaking of bridges. We've come a long way since the Chaldeans (kal-DEE-uns), you know. One of the great bridges of the world is right here in San Francisco - the Golden Gate.

It turns out the Golden Gate Bridge celebrated a birthday recently, and someone asked its chief engineer about the stress last year's El Nino put on the structure. They almost had to close it down a couple of times because of high winds.

And he said that this El Nino's storms were bad, but nothing like the El Nino that hit the bridge in the 1930s, when it was being built.

Why? Because that storm hit before the roadway and cables were laid - when the bridge was just two big independent foundations sticking out of the Bay.

The engineer said, quote, "The two Golden Gate towers were most vulnerable when they were standing alone, without benefit of cables and a roadway to distribute the stress."

Remarkable, isn't it? Only when the towers were joined together … only when they shared a load … only when the bridge was brought together as a complete System to carry out its duty … was it strong enough to withstand the kind of forces that brought down its forebear centuries earlier in Mesopotamia.

Folks … our System has come a long way, too. This is the greatest System of its kind the world has ever seen. It's standing at a chasm … another in a long history of chasms we've succeeded in bridging.

I've seen this System join together and act like a system … at every critical period in its history. Every time, it's risen to the occasion.

Joining together is once again what must happen.

I leave it in your able hands to do what must be done.

Best wishes. Good luck.

Live up to your heritage … and build the bridge your times require.

Thank you very much.