RE: [GRRN] Economic Forces in the Soft Drink Industry

Anne Morse (AMorse@NT1.Co.Winona.MN.US)
Mon, 5 Apr 1999 09:17:39 -0500


In light of the recent unpleasant financial numbers for Coke, and Pepsi
too, leading to packaging changes, it strikes me that this indicates the
critical timeliness of the Take It Back campaign. There may be no
better way of expressing our support for recycling in general, and
demonstrating our political clout, as this campaign.

The soda industry folks continue to cite conclusions of consumer surveys
they undertook after incorporating recycled PET into their bottles in
the early 90's, which showed that they got no demonstrated marketing
advantage from use of the recycled plastic. It was on the basis of
these results, then, that they justify dropping the recycled content
from their bottles.

I guess what we've got to show them is that while there may not be a big
up side for them from use of RPET, (as we reasonably expect industry to
use post-consumer content whenever possible), there may well be a very
big down side for not using it!

Therefore, since we already have a campaign in process to push this
issue (the Take it Back initiative), and in some measure have our
credibility on the line with it, I think it would be wise of us to put
everything we collectively have into this train that's already rolling.


>From: RecycleWorlds[]
>Sent: Friday, April 02, 1999 1:12 PM
>To: multiple recipients of
>Subject: [GRRN] Economic Forces in the Soft Drink Industry
> I don't know if you've follow the financial pages, but recent reports
>affecting the soft drink industry create the potential in the future for
>significant design issues that may complicate recycling severely. Bear
>with me: although it involves a good deal of financial ins-and-outs, at
>times it is those forces that ultimately can wind up causing havoc for
> According to the 3/31/99 Wall Street Journal ("Coke's Slower Sales Are
>Blamed on Price Increases," p. A3) Coca-Cola's sales for this quarter are
>expected to be growing at a much slower annual rate than investors have
>come to
>expect (2% instead of 4-7%). The reason reported for this is that, after a
>year of price cutting to increase market share that hurt earnings, Coke
>reversed course and instituted price hikes to improve its margins that had
>deteriorated when a price war had broken out. This was followed the
>next day by a report in the 4/1/99 Wall Street Journal, "Pepsi
>Bottling IPO Falls Below Offering Price," stating that the new stock
>offering for Pepsi's bottling operations had to be sold below its asking
>price because investors had turned cold on soft drink companies following
>Coke's disappointing announcement the day before.
> The ability of a corporation's stock to command a premium from
>investors -- like Coke has for years -- is substantially a function of its
>ability to achieve above average growth in earnings. These reports indicate
>that investors are concerned that the innate structure of the soft drink
>industry may make it difficult to sustain its historic high growth rates in
>the future. Indeed, it suggests that people are increasingly seeing soda as
>a commodity (i.e. where one soda is little different from another) rather
>than a differentiated product. According to Jennifer Solomon, an analyst
>at Salomon Smith Barney, "confidence is eroding...[a]lthough we think
>investors are forgiving of near-term difficulties for Coca-Cola, we think
>this may be the end of giving Coca-Cola the benefit of the doubt," noting
>the stock could fall further
> Once a product suffers commoditization, its margins erode and Wall
>Street flees to seek out tomorrow's darling. That tends, as it should in
>our economic system, to focus management's attentions like little else.
> One of the prime vehicles for reestablishing strong product
>differentiation is the package, and we should probably expect to see
>dramatic new package elements over the next year as Coke and Pepsi seek to
>reestablish their credibility with the Street. Some new designs, such as
>the famous contour Coke design to make a plastic bottle look like a glass
>bottle, don't have any negative implications for recyclers. Others --
>multiple colored PET bottles come to mind -- on the other hand, would.
> This may be a area in which municipal recycling coordinators, state
>recycling officials, haulers, MRF operators and reclaimers may want to
>proactively and constructively make their concerns known to the soft drink
>industry so that potential problems down the road can be averted.
> Peter
>Peter Anderson
>RecycleWorlds Consulting
>4513 Vernon Blvd. Ste. 15
>Madison, WI 53705-4964
>Phone:(608) 231-1100/Fax: (608) 233-0011