Coca-Cola’s Newest Competitor: Water Supply
Climate change is having a significant effect on water scarcity, especially in developing nations. Food and Beverage multinationals such as Coca-Cola are striving to increase water efficiency and water replenishment in these nations – all without taking a major hit to the bottom line.
Just how important is water in the stratosphere of business?
For more than a decade, the shortage of global water availability has had a direct impact on the operating performance of some of the world’s largest companies. This has led Atlanta-based beverage giant Coca-Cola to rethink how it views climate change. “Increased droughts, more unpredictable variability, 100-year floods every two years…when we look at our most essential ingredients, we see these events as threats” [1]. This realization over the past few years has suddenly made water efficiency one of the company’s most pressing initiatives.
Water is the lifeblood of Coca-Cola’s business. It is needed to grow ingredients, is used in manufacturing, and ultimately is a core element in every one of the company’s 500+ brands. In fact, the company uses more than 300 billion liters of water annually to make its products [2]. Furthermore, Coca-Cola has a strong relationship with the local communities in which it operates, and those communities count on Coke to replenish their water (more on the water stewardship efforts later). Therefore, as the issue of water supply has intensified over the past several years, Coca-Cola’s leaders have realized that fighting water scarcity is not only important to the company’s bottom-line – but also to the millions of people who live in the communities in which Coke operates every day.
To combat this major threat, Coca-Cola has undertaken several major initiatives relating to water stress. The first, and perhaps most important, is a water-use efficiency project that the company has been working on for over a decade. The key to improving water efficiency is to reduce or eliminate water use in the manufacturing process. Coke has done this effectively by allocating significant resources to new manufacturing technologies in both the United States and abroad. Included below is a graphic that shows the improvement Coca-Cola has made in this area over the past dozen years [3]:
Over the next two years, the company’s goal is to drive this water efficiency figure down to 1.7 liters.
Coca-Cola has also partnered with several organizations, including the World Wildlife Fund and The Nature Conservancy, to help identify its water footprint. A recent study found that 80% of Coke’s total water footprint comes from their agricultural ingredient supply chain [3], which has redirected many of the company’s efforts to this focus area. In fact, recently Coca-Cola publicly committed to “sustainably source” 100% of its main ingredients by 2020. Such ingredients include high-fructose corn syrup, stevia, coffee, cane sugar, oranges, and soy. The company also announced its Sustainable Agriculture Guiding Principles (SAGP), which outlined the in-depth process of “sustainably sourcing” and set expectations for the future.
Although Coca-Cola recently hit its goal of “replenishing 100% of the water it uses” three years early [4], one recommendation would be for the company to take the project one step further. It would be wise for them to push forward and try to increase water efficiency another 30% by 2025. Doing the simple math shows that this would cut over 100 billion liters of water annually from Coke’s supply chain. Below is a graphic of Coca-Cola water stewardship efforts and impact over the past few years [3]:
Another recommendation would be to invest more heavily in manufacturing technology in developing countries. Bottling plants in the US and Europe have become extremely water-efficient over the past few years, but plants in Africa and parts of Asia are still severely lagging [2]. Investing in this infrastructure would enable Coca-Cola to develop even better relationships with its partners overseas, while simultaneously bolstering its supply chain for the years ahead.
Finally, Coca-Cola should consider putting more resources into its water footprint research, perhaps by partnering with additional water sustainability organizations. Areas such as Africa, where water is scarce, have an extremely difficult time sustaining even a small water footprint. This can be devastating for communities, and so it is paramount for private sector companies to understand the ‘benefit vs. impact’ of their practices in these places.
Simply stated, water replenishment and water efficiency strategies are critical for Coca-Cola and other global beverage companies moving forward. Not only do these companies’ supply chains rely on it, but communities around the world do as well. How will large multinationals fare now that their water efforts are in the public eye? Will these companies be willing to sacrifice profits to increase the necessary investment in these areas?
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References:
[1] Davenport, Coral. 2017. “Industry Awakens To Threat Of Climate Change”. Nytimes.Com. https://www.nytimes.com/2014/01/24/science/earth/threat-to-bottom-line-spurs-action-on-climate.html?_r=2
[2] “Mitigating Water Risk For Communities And For Our System”. 2017. The Coca-Cola Company. http://www.coca-colacompany.com/stories/mitigating-water-risk-for-communities-and-for-our-system
[3] “Improving Our Water Efficiency”. 2017. The Coca-Cola Company. http://www.coca-colacompany.com/stories/setting-a-new-goal-for-water-efficiency
[4] “Coca-Cola Met Its Water Goals Early. Were They Too Easy?”. 2017. Harvard Business Review. https://hbr.org/2015/09/coca-cola-met-its-water-goals-early-were-they-too-easy
Justin – a great article and discussion on the role Coca-Cola plays in preserving natural resources. Especially in developing economies, access to water is a major hurdle for everybody, including multi-national corporations like Coca-Cola. As they look to source sustainable partners in their supply chain, Coca-Cola will be a global leader.
I appreciate the fact that Coca-Cola is making its own processes more efficient, but how are they helping their partners with water efficiency, water usage, and water purification? Are they assisting helping local populations develop their own abilities to access and purify water? Do they encourage farmers to use drought-resistant crops (like those developed at Indigo)? If so, why don’t they use those images/storylines in their marketing materials?
In response to your question, I think it’s absolutely vital for multi-national companies to continue to invest in local infrastructures and economies. First, if there isn’t clean water to drink, then there probably isn’t clean water to supply the plant. Second, without access to clean water, the local population will gradually leave the local area, thereby reducing demand for Coca-Cola products. Third, an investment in infrastructure will help build brand awareness in the community. If choosing between a Pepsi and Coke, a consumer will choose the product with which he/she has developed a personal connection. For these reasons (and others), investing in these areas will be absolutely critical to the long-term growth for multi-national corporations like Coca-Cola.
It’s great to see Coca-Cola investing in sustainable operations and finding opportunities to reduce water use, especially as climate change continues to negatively affect our ecosystems. The progress Coca-Cola has made in improving water use and replenishment really demonstrates the company’s commitment to the cause.
The question you pose on if companies are willing to sacrifice profits to make investments in these sustainable practices is one that I often see the answer being no, unless external influence requires them to. In Coca-Cola’s case, there were significant pressures from governments and customers to change their behavior, and it wasn’t until damage had been done in some developing communities that Coca-Cola made improvements. (http://www.truth-out.org/news/item/41916-coca-cola-sucks-wells-dry-in-chiapas-forcing-residents-to-buy-water) The negative effects were felt by the locals, and it took time to reverse their actions. It was clear that at the beginning, incentives for Coca-Cola were not aligned with sustainability practices, and many individuals suffered from their negligence. How can companies be held accountable for being more proactive moving forward, so that they do sacrifice profits, make initial investments, and avoid damaging the environments of local communities?
I agree with LP on her point about external influence being crucial to push companies to invest in sustainability and waste reduction. Still, I think that more and more companies realize that investing in waste reduction and focusing on reducing raw materials consumption for their operations can lead to significant cost savings on the long term.
In the case of water consumption, Coca Cola is not the only one big corporation to have taken actions to reduce their negative impact on the environment. For instance, P&G has set up the objective of reducing water used in its manufacturing facilities by 20% per unit of production by 2020, with a specific focus on facilities located in water-stressed regions (1).
Interestingly, P&G not only focuses on reducing its own water consumption but also focuses on providing customers with products that encourage reduction in water consumption. This is for instance the case of shampoo that also features conditioner benefits, allowing people to use less water to clean their hair. These products are sold at a premium compared to classic shampoos. Thus, another way for businesses to have a positive impact on the environment is by shaping consumers behaviors. I am not sure how this would look like in the case of Coca Cola, but my point is that there is no need to sacrifice profits for a company to help reducing water consumption worldwide.
(1) P&G company, “Conserving our most precious resource”, https://us.pg.com/sustainability/environmental-sustainability/focused-on/water, accessed in November 2017
Justin – thanks so much for sharing the challenges facing Coca Cola! I found your assessment of their efforts to reduce water usage to be fascinating and compelling. I never fully appreciated how much of a role water plays in their 500+ brands. I also appreciate how you established the link between water-supplies and Coca-Cola’s bottom-line. You convinced me that the firm is taking this problem seriously because their incentives are truly aligned with what is best for society.
It was also great to read about Coca Cola’s efforts to reduce water usage in their manufacturing processes. I wonder how they were able to do this without also reducing the quality taste of their products. I was also shocked to hear that Coca-Cola was able to successfully replenish 100% of the water it uses. I did my TOM Challenge on PepsiCo’s challenges with global warming, and they seemed to be far behind Coca Cola on these efforts. I wonder also if de-salinization plants could play a significant role here in leveraging the abundance of sea-water throughout the world. Thanks again for sharing!
Thanks for posting Justin! To respond to your question regarding the willingness of companies to sacrifice profits to increase necessary investment, I think a case can be made regarding the company’s specific strategy and time horizon. Though solutions to increasing the efficiency of water use such as investment in manufacturing tech could lead to profitability declines in the short term due to the large capital expenditures required, in the longer term it seems as though more resource efficient manufacturing practices could drive down costs and become a profitable competitive advantage. A win for the company and the environment.
In terms of supporting local communities, I see a huge opportunity for Coke to invest in more public and private partnerships. For Coke this would effectively outsource some of the expertise required to make the most impact in the specific geography by providing capital to often underfunded organizations with a mission to increase sustainability.
Justin, I appreciate your analysis and perspective on the responsibilities of large corporations to preserve water. I believe that it is meaningful that Coca-Cola takes measures to combat this issue, and the company actually achieves goals set for themselves. When a leader in the industry like Coca-Cola practices efforts to reduce the use of water in the production processes, it becomes an industry norm – other companies will follow it.
To your question about how large multinationals fare now that their water efforts are in the public eye, I think that Coca-Cola’s practice is leading to a right direction. In a competitive landscape in CPG, other companies must take their own water efforts to manufacture their goods, as water efforts will be the common requirement in the public eye. Also, I think that it is critical for companies to message the visual goals, timing, and detailed action items as a water effort to take, and this will be a value-add as a company. Because I think this will be the common practice of the industry, I believe that companies will be willing to prioritize water efforts before profits. However, my worry is how companies are able to scale this effort. As you mentioned, actions are not yet on the same page as US in Africa or Asia. Because larger the company, more responsibility that comes with, these global companies must operate and implement the water efforts globally. Because supply chain model, precisely how water is consumed in each stage can differ from country to country, another challenge for these companies will be how to scale the water effort to truly practice the solution.
Justin, great article and a topic that needs to be on everyone’s radar. Water is a resource that I think many (people and companies alike) take for granted and that companies need to use efficiently, as it’s a raw material that affects every single human being. It is great to see companies like Coca Cola being “stewards” of resources like water and striving to not have a negative impact on its availability.
As you mention, it is critical for companies to invest in research in order to make their use of water more efficient and, to the question you pose of how efficient water utilization will be considered against profitability, I think more companies will increasingly become willing to give up profit as water scarcity becomes more apparent to the general public. At Coke specifically, the company should continue to invest in research that can reduce the amount of water used in their product formulations and production processes, as that has both the potential to reduce production costs (as water resources become more expensive) and decrease its water footprint. Additionally, from a marketing perspective, Coke can create a lot of value with consumers by leading the effort to being a more “water-use friendly” company.