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Summary of Key Points
Having endured decades of criticism on an international scale for being the advance scouts, so to speak, of American culture on foreign shores and for advertising campaigns that relentlessly induced the mass of consumers to keep buying a beverage not essential to life and health, The Coca-Cola Company has lately had to confront criticism about harm done to ecosystems everywhere. For instance, carbonated soft drinks bottlers use massive amounts of water. Fears have been raised and protests mounted in Africa and India about Coke and Pepsi plants depriving neighbouring communities of water needed not only for drinking but also irrigation to be self-sufficient in food and sanitation systems to forestall disease (Stecklow, 2005).
Even in industrialised nations, the soft drink companies have also come under fire for adding to the volume of non-recyclable trash. Whereas soft drinks were originally distributed in glass bottles that could be brought back to the plant, cleaned and refilled, the goal of saving on the cost of retrieval led to a shift to, first, aluminium cans, followed by clear plastic or PET (polyethylene terephthalate) bottles. Both are one-way packaging. The world has learned to recycle aluminium but PET, as will plastic goods, had long defied solution. In response, Coke has committed to 100% recycling of aluminium and PET packaging (AZo Journal of Materials Online, 2009).
In the article subject of this paper, Gunther (2009) reports how Coca-Cola CEO Muhtar Kent took it upon himself to be “prominent corporate advocate” for climate change by showing up in Copenhagen for the recently-concluded global summit on the same populist theme. With the eyes of all the world’s press on the protesters, the leaders of the U.S.A., China and all other non-European countries attending the summit, Mr. Kent made his pitch for the company to be seen as doing something about climate change and sharing what might become scarce water supplies. In fact, the article is a thinly-disguised publicity piece about the company having developed:
- Composite PET bottles that are 30% cellulose from sugarcane waste, already available in Denmark (alone among European countries as a showcase perhaps for this climate change), Canada and the United States (EarthFirst, 2009).
- The latest effort to reduce consumption of fossil fuels are bottles that are 50% recycled PET and 15% cellulose.
- An action plan to become “100% water neutral by 2020” (Gunther, 2009, p. 1) essentially a promise to recycle wastewater at all 900 bottling plants around the world and replenish the balance of freshwater supply used in the product that actually leaves the plant. The latter would appear to call for constructing new irrigation and municipal water systems to allay guilt at taking water away from farmers and nearby residents.
- Replacing all vending machines and coolers around the world that still use hydrofluorocarbon (HFC) by 2015 with another refrigerant gas and with compressors or housing that is also more energy-efficient. More than plastic waste and water supplies impounding, the company claims, those 10 million refrigerated-product display units at retail comprise the largest portion of the company “carbon footprint”. HFC is only an interim solution to the chlorofluorocarbon (CFC) previously essential to refrigerant-using machines for being only slightly less damaging to the ozone layer.
In Relation to Principles of Competitive Advantage and Evaluation
These packaging, water consumption and refrigerant issues are principally about consumer opinion which spills over into merchant demands for as many brands as possible to participate in the “green” bandwagon. Secondarily, the matter of new refrigerated displays for use at retail is about reducing merchant costs. In either case, these are responses to two forces of competition in Michael Porter’s “Five Forces” model (Harvard Business School Press, 2006): the bargaining power of buyers and the threat of substitute products.
On the surface, it might seem that the primary strategic factor in the carbonated soft drink business is the rivalry between Coke and Pepsi. After all, both companies compete visibly for share of advertising, signing up the most suitable pop singer celebrities, and ensuring perfect retail availability, all while maintaining product quality. And so it has been since early in the last century, when the product category was born as a refreshing new choice dispensed exclusively on tap at soda fountains.
But growth rate has slowed and there is only so much market share one can “buy” through hyper-aggressive advertising and promotions when the industry is a virtual duopoly between the two brand lines. As the experience of the 1990s and earlier in this decade shows, the rival concentrate makers have proven vulnerable to competition from substitute beverages. Eschewing high-sugar soft drinks, droves of adolescents and adults switched to bottled water, bottled tea, enriched fruit drinks and energy drinks (Business Insights, 2008; Kay-Shuttleworth, 2002).
Clearly, the mere fact of exercising choice to have a latte at Starbucks or a cappuccino at Caffe Nero instead of a soda means consumers have great bargaining power versus soft drink bottlers. And climate change is a public issue whose time has arrived. No longer are local consumers tolerant of coal-burning power plants and factories that are a throwback to the vitality of the Industrial Age in the 19th century. The “gas pump shock” that struck home to motorists when crude oil prices rocketed to $150 a barrel in mid-2008 had the effect of raising interest not only in petrol-sipping models but also created demand for cars that used renewable fuels such as ethanol and hydrogen or ran on batteries. At the same time, news that average global temperatures were forecast to rise more than 1.5° C by the next decade after rising less than one degree since the start of the Industrial Age ensured that climate change followed closely on concerns about the breakdown of the ozone layer (Hurst, 2009; Vorosmarty, Green, Salisbury and Lammers, 2000).
For the lion’s share of educated consumers unable to immediately invest in power-saving technologies or cars driven by alternative fuels, there developed a consciousness about contributing somehow to preserving the atmosphere from further degradation. Hence, the buying interest in products from factories with fewer emissions, crisps made from potatoes grown with minimal use of petrochemical fertilizers, or packaging that did not add to the mountains of non-biodegradable trash already choking every landfill with reach.
Since consumer choice is exercised at the tills, the bargaining power of supermarket chains grew massively. This is especially true for the likes of Wal Mart (the largest chain in the United States, the world’s largest privately-held employer, and operating domestically through wholly-owned ASDA) and Tesco, the dominant retailer in the UK and second most profitable globally after Wal Mart and France’s Carrefours. They are now in a position to pressure Coca Cola to alter the refrigerant gas in branded retail displays and vending dispensers. As well, since price is such a huge factor in grocery competition, the trade would prefer that soft drink bottlers provide more such units that consume less electricity.
Taking a broader view, Coca Cola also accommodates the opinion of three other stakeholders: media, policymakers in government, and nongovernment organisations or nonprofits like Greenpeace.
At the end of the day, the packaging innovation Coca Cola has already deployed here and now is perhaps its best contribution to an image of corporate social responsibility in respect of sharp reductions in non-recyclable trash. The promises of energy-efficient coolers and becoming “water-neutral” bear time scales that stretch to the middle of, or late in, the next decade. This is quite as disappointing as the bland result and long time horizons that resulted from the Copenhagen summit on climate change: long on words, awfully short on action.
References
AZo Journal of Materials Online (2009). Coca Cola set goal to recycle 100% of aluminum can and PET bottles it manufactures. Web.
Business Insights (2008). Growth strategies in soft drinks. Web.
EarthFirst (2009). Coca-Cola opens bottle-to-bottle recycling centre. Web.
Gunther, M. (2009). Coca-Cola takes on climate change.Web.
Harvard Business School Press (2006). Essentials of strategy: Business literacy for HR professionals. Boston: Harvard Business Publishing.
Hurst, T. B. (2009). Poll shows unprecedented global concern about climate change. Web.
Kay-Shuttleworth, R. (2002). Soft drink competition reaches critical point. The Global Carbonates Report 2002. Web.
Stecklow, S. (2005). How a global web of activists gives Coke problems in India. The Wall Street Journal. Web.
Vorosmarty, C.J., Green, P., Salisbury, J. & Lammers, R.B. (2000). Global water resources: vulnerability from climate change and population growth. Science.
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