Coke Tests Vending Unit That
        Can Hike Prices in Hot Weather

        By CONSTANCE L. HAYS

The adorable car-hop doll is available for $135.
            Taking full advantage of the law of supply and
            demand, Coca-Cola Co. has quietly begun testing a
        vending machine that can automatically raise prices for
        its drinks in hot weather.

        "This technology is something the Coca-Cola Co. has
        been looking at for more than a year," said Rob Baskin,
        a company spokesman, adding that it had not yet been
        placed in any consumer market.

        The potential was heralded, though, by the company's
        chairman and chief executive in an interview earlier
        this month with a Brazilian newsmagazine. Chairman
        M. Douglas Ivester described how desire for a cold
        drink can increase during a sports championship final
        held in the summer heat. "So, it is fair that it should be
        more expensive," Ivester was quoted as saying in the
        magazine, Veja. "The machine will simply make this
        process automatic."

        The process appears to be done simply through a
        temperature sensor and a computer chip, not any
        breakthrough technology, though Coca-Cola refused to
        provide any details Wednesday.

        While the concept might seem unfair to a thirsty person,
        it essentially extends to another industry what has
        become the practice for airlines and other companies
        that sell products and services to consumers. The
        falling price of computer chips and the increasing ease
        of connecting to the Internet has made it practical for
        companies to pair daily and hourly fluctuations in
        demand with fluctuations in price -- even if the product
        is a can of soda that sells for just 75 cents.

        The potential for other types of innovations is great.
        Other modifications under discussion at Coca-Cola,
        Baskin said, include adjusting prices based on demand
        at a specific machine. "What could you do to boost
        sales at off-hours?" he asked. "You might be able to
        lower the price. It might be discounted at a vending
        machine in a building during the evening or when
        there's less traffic."

        Vending machines have become an increasingly
        important source of profits for Coca-Cola and its
        archrival, Pepsico. Over the last three years, the
        soft-drink giants have watched their earnings erode as
        they waged a price war in supermarkets. Vending
        machines have remained largely untouched by the
        discounting. Now, Coca-Cola aims to tweak what has
        been a golden goose to extract even more profits.

        "There are a number of initiatives under way in Japan,
        the United States and in other parts of the world where
        the technology in vending is rapidly improving, not only
        from a temperature-scanning capability but also to
        understand when a machine is out of stock," said
        Andrew Conway, a beverage analyst for Morgan
        Stanley. "The increase in the rate of technology
        breakthrough in vending is pretty dramatic."

        Bill Hurley, a spokesman for the National Automatic
        Merchandising Association in Washington, added:
        "You are only limited by your creativity, since
        electronic components are becoming more and more
        versatile."

        Machines are already in place that can accept credit
        cards and debit cards for payment. In Australia and in
        North Carolina, Coke bottlers use machines to relay,
        via wireless signal or telephone, information about
        which drinks are selling and at what rates in a
        particular location. The technology is known as
        intelligent vending, Baskin said, and the information
        gathered and relayed by Internet helps salespeople to
        figure out which drinks will sell best in which
        locations.

        "It all feeds into their strategy of micro-marketing and
        understanding the local consumer," Conway said. "If
        you can understand brand preferences by geography,
        that has implications for other places with similar
        geography."

        Coca-Cola and its bottlers have invested heavily in
        vending machines, refrigerated display cases, coolers
        and other equipment to sell their drinks cold. Over the
        last five years, Coca-Cola Enterprises, Coke's biggest
        bottler, has spent more than $1.8 billion on such
        equipment. In support, Coca-Cola has spent millions
        more on employees who monitor and service the
        equipment. In 1998 alone, it spent $324 million on such
        support to its biggest bottler.

        And last week, Coke's chief marketing officer unveiled
        the company's plan to pump more sales of its flagship
        soft drink, Coca-Cola Classic. The program includes a
        pronounced emphasis on Coke served cold.

        Sales of soft drinks from vending machines have risen
        steadily over the last few years, though most sales still
        take place in supermarkets. Last year, about 11.9
        percent of soft-drink sales worldwide came from
        vending machines, said John Sicher, the editor of
        Beverage Digest, an industry newsletter. In the United
        States, about 1.2 billion cases of soft drinks were sold
        through vending machines.

        In Japan, some vending machines already adjust their
        prices based on the temperature outside, using wireless
        modems, said Gad Elmoznino, director of the Trisignal
        division of Eicon Technology, a Montreal-based
        modem maker. "They are going to be using more and
        more communications in these machines to do
        interactive price setting," he said.

        Industry reactions to the heat-sensitive Coke machine
        ranged from enthusiastic to sanctimonious. "It's another
        reason to move to Sweden," one beverage industry
        executive sniffed. "What's next? A machine that X-rays
        people's pockets to find out how much change they have
        and raises the price accordingly?"

        Bill Pecoriello, a stock analyst with Sanford C.
        Bernstein, applauded the move to increase profits in the
        vending-machine business. "This is already the most
        profitable channel for the beverage companies, so any
        effort to get higher profits when demand is higher
        obviously can enhance the profitability of the system
        further," he said.

        He pointed to a possible downside as well. "You don't
        want to have a price war in this channel, where you
        have discounting over a holiday weekend, for
        example," he said. "Once the capability is out there to
        vary the pricing, you can take the price down."

        A Pepsi spokesman said no similar innovation was
        being tested at the No. 2 soft-drink company. "We
        believe that machines that raise prices in hot weather
        exploit consumers who live in warm climates,"
        declared the spokesman, Jeff Brown. "At Pepsi, we are
        focused on innovations that make it easier for
        consumers to buy a soft drink, not harder."