(FORTUNE Magazine) – IF YOU KNOW the Coca-Cola Co. or have ridden the stock's 1,000% rise this past decade, you know the power behind the pop: It's those wonderfully profitable international operations. But you may not know that back in the U.S., Coke faces a managerial puzzle that would challenge the hottest of hotshot executives -- which is why the company has brought in just such a manager to try to sort it all out.

Here's the problem: Sales of Coca-Cola's soft drinks in the U.S. are going flat, in spite of the fact that prices are way, way down. While volume was up 3.5% in the first half of this year, the third-quarter increase was less than 1% over the same period last year. Coke has been adding market share faster than Pepsi, but that's still a trickle compared with the 8% or so annual increases Coke was getting in the mid-1980s. Yet Coke costs the same at retail as it did at least ten years ago, which means that after adjustment for inflation, it is much cheaper. Southern Californians got a hot bargain over Labor Day: a six-pack of Coke for 99 cents. Low retail prices are not necessarily bad for the Coca-Cola Co. Despite what most people think, Coca-Cola does not sell Coke, or Sprite, or any other drink it advertises. What Coca-Cola sells is concentrate, the secret liquid that gives the drinks their flavor. The bottlers who buy the concentrate mix it with sweetener and carbonated water, squirt the soda into bottles and cans, and sell the cases to retail outlets. What's bad for bottlers -- cutthroat pricing -- may be good for Coke, since low prices usually boost soft drink volume and demand for concentrate. But that hasn't happened lately. Now just to make things interesting, consider that Coke is the largest shareholder in Coca-Cola Enterprises, the bottler that sells 43% of all Coke products in the U.S. It was formed five years ago when Coke consolidated the various bottling operations it owned and sold 51% to the public. CCE, as the $4-billion-a-year company is commonly known, is a casualty of the price battles and a stock-market dud (see chart). Thus a sticky conflict arises: Coke management must juggle the priorities of increasing volume for the sake of its own shareholders while improving prices for the sake of CCE's, notably including itself. Henry Schimberg, 58, just may be the manager who can raise prices and volume, making everyone happy. He is president and chief operating officer of Coke's No. 2 bottler, Johnston Coca-Cola Bottling Group of Chattanooga. If CCE's $1.45 billion deal to acquire Johnston goes through by year-end as planned, Schimberg becomes top operator at CCE -- and none too soon. The recent lowball pricing, as well as other problems at CCE, arose during the tenure of CEO Brian Dyson. A longtime Coke executive and former president of Coca-Cola USA, Dyson, 55, lacked the personality and the street smarts to get along with retailers. After CCE's sales flagged early this year, the bottler resorted to price cutting. Says Craig Weatherup, president and chief executive of Pepsi-Cola North America, whose prices have been pounded too: ''CCE has been terribly inconsistent in dealing with the retail trade. Their practices have been bad for CCE and for the entire soft drink category.'' Coca-Cola, which owns 49% of CCE and 22% of Johnston, struck the acquisition agreement without even telling Dyson about the talks. The buyout would fit Coke's long-term strategy of consolidating operations in order to improve production and distribution as well as gain better control over marketing. The real reward in this deal, though, is Johnston's first-rate management. CCE's new chief executive will be Summerfield K. Johnston, 59, whose grandfather bought the first Coca-Cola bottling franchise in 1901. Known as ''Skey,'' Johnston owns 45% of the Johnston company and operates out of a tiny Chattanooga office with a treasurer, a couple of secretaries, and a few accountants. He leaves day-to-day operations to Schimberg, whose office is in Eagan, Minnesota, a few steps down a hallway from a bottling plant. Under Schimberg, Johnston's sales volume, exclusive of acquisitions, has increased around 8% annually since 1986, twice the industry rate. Operating profits (including those from acquisitions) have expanded almost fivefold to $79.5 million on 1990 revenues of $966.9 million.

Jesse Meyers, editor of Beverage Digest, the soft drink industry's leading newsletter, calls Schimberg the most extraordinary operator in the business today: ''Henry walks on soft drinks.'' Well, almost. A truck driver for Royal Crown Cola in Chicago at the start of his career, Schimberg still rises at 5 a.m. and spends 80% of his time in the field, meeting with retailers and visiting Johnston's 65 plants and distribution centers scattered throughout | the Midwest. ''The style is very simply hands-on management,'' says the wiry, intense Schimberg. WHEN HE is in Eagan, Schimberg relies heavily on the IBM computer terminal beside his desk. ''I can tell you how much of each brand we sold yesterday in any city, and the average discount and the profit margins,'' he says, poking a few buttons. The data system is far superior to CCE's. While Dyson has directed pricing and marketing strategies from CCE's Atlanta headquarters, Schimberg lets managers in nine operating divisions call many of the shots in their regions. That includes throwing a string of parties during Kentucky Derby week in Louisville, for example, or heavying up on in-store displays for Diet Coke in Minneapolis, where consumers are particularly calorie-conscious. Schimberg's philosophy: Don't resort to low prices as a substitute for astute local marketing. Paine Webber beverage analyst Emanuel Goldman thinks better managers will improve CCE's operating margins from 8% to at least 11%. Yet even if prices improve, they may not spurt enough to give CCE's stock much of a kick. Remember, parent Coca-Cola doesn't necessarily like high prices. Asked whether pricing is a problem, Coca-Cola USA President Douglas Ivester responds, Sphinx-like, ''The price-volume mix right now is not good or bad. It is what it is.'' Skey Johnston disagrees: ''Obviously we're coming at this issue from two somewhat different positions. I don't expect to see any dramatic increase in price, but hopefully we'll be able to ratchet it up enough so it won't be the problem it has been.'' What's enough? Since Coke raises concentrate prices some 4% a year, and bottlers must absorb increases in packaging costs as well, Johnston says he thirsts for soft drink pricing that at least keeps pace with inflation. Even that could keep pressure on margins. Coke and its bottlers both, of course, wish consumers would buy more drinks. But Coke's marketers in Atlanta have been lackluster of late. Says Schimberg: ''It would be dishonest to say that there has been no dissatisfaction with Coke's advertising.'' Coke once put out some of the most entertaining, innovative commercials on TV, but these days the ads are hardly memorable. FORTUNE informally quizzed eight senior executives at various ad agencies asking them to name Coke Classic's current slogan, and not one could recall it. (You can't either? It's ''Can't beat the real thing.'') Says Peter Sealey, Coke's new head of marketing worldwide: ''Maybe our ads aren't trendy or au courant in the ad industry. But among people in the real world, our slogan awareness is good.'' Still, Pepsi, which controls 33% of U.S. soft drink sales vs. Coke's 41%, consistently scores higher than Coke in viewer surveys, thanks to those bluesy Ray Charles ''You've got the right one baby, uh-huh'' spots for Diet Pepsi and the long-running ''Choice of a new generation'' campaign for its core brand. Donald Keough, Coke's president, says confidently, ''All our data about our brand image is very positive. This 105-year-old company has a lot of zip in it, including in the U.S.'' Coke is spending heavily to revive 25-year-old Fresca and plans to launch an iced-coffee drink in a joint venture with Nestle, possibly next year. Says Coke USA boss Ivester: ''These niche brands will be a boost to the bottlers because they won't compete with existing brands.'' In January, Coke will air new commercials for its core products. The TV spots will be the first crop of truly global ads: American consumers see the same Coke pitch as Africans and Arabs. Sealey says, ''The time is right, with the spread of a common pop culture around the world.'' Coke is also targeting ads to precise geographical areas. For example, a special commercial for Texas says, ''There's only one taste as big and bold and real as Texas itself.'' THE MOST CURIOUS marketing move of all is Coke's recent agreement with Michael Ovitz, Hollywood's most powerful talent agent. Ovitz, who runs Creative Artists Agency, is supposed to help Coke polish its brand image worldwide. But how? He'll play matchmaker, maybe hooking a hot movie director onto a Diet Coke commercial. Also, Sealey says, Ovitz could clue Coke in on an up-and-coming music act or film to link to marketing promotions. Says Sealey: ''To know three years in advance what a blockbuster Batman was going to be would have been enormously valuable. Right now the biggest movie of 1993 is sitting on someone's desk.'' The solution to Coke's U.S. conundrum sounds quite simple: Just sell more soft drinks at higher prices. The company is taking a couple of megawhacks at it, bringing in Ovitz to help enthrall consumers and Schimberg to push product out the door. It all seems straightforward enough. But as the past several years have shown, no way will it be easy.

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