Coke and Pepsi's India Dreams Crash
NEW YORK - As Coke and Pepsi defend allegations
of high pesticide levels in soft drinks sold in India, industry experts
are skeptical whether the companies' responses to the issue will prevent
a sales drop in India for the second consecutive year.
In a report published earlier this month, environmental group The
Centre for Science and Environment (CSE) said it found traces of pesticides
far above permissible levels in the products of the two global beverage
The report by the New Delhi-based group triggered a ban on the sale
of beverages made by the two firms in several Indian states at or
near state-run schools, colleges and hospitals.
"I don't think they realize how negative this type of problem is for
their performance, and hopefully they would have learned from their
past mistakes," said Argus Research analyst Erin Ashley Smith.
In 2003, CSE came out with a similar study, highlighting weak food
safety laws in the country.
"The thing that makes this issue really, really bad is that this isn't
the first time it's come up," said Al Ries, head of marketing firm
Ries & Ries. "I think the companies are going to take a big hit in
sales over the next couple of years."
In 2005, soft drink volumes in India dropped for the first time in
a decade, according to Canadean, a UK-based beverage research company.
Soda sales in India plunged 16 percent last year, while China volumes
jumped 14 percent, according to Beverage Digest, a trade magazine.
Per capita consumption in China was three times that of the Indian
consumer in 2005.
"(India) has ... a lot of promise because of its large population
base and also an emerging middle class with disposable income," said
Gary Hemphill, managing director of research group Beverage Marketing.
"I think it has been a disappointment so far."
India comprises just about 2 percent of volumes for both Coca-Cola
Co. and PepsiCo Inc. and is a negligible part of operating
profit, according to JP Morgan analyst John Faucher.
According to several industry sources, Indian sales of drinks made
by Coke and Pepsi have fallen by about 10 percent following bans imposed
by some states over the report that they contain pesticides.
Coke and Pepsi almost entirely control the 355-million case per year
"Obviously, this is not helpful to sales," said PepsiCo spokesman
Dick Detwiler. "Our products were absolutely safe three years ago
when this issue was raised and our products are absolutely safe today."
Both Coke and Pepsi have published newspaper advertisements to say
pesticide levels in their products are below permissible levels and
less than those detected in other foods, such as tea, fruits and dairy
"(We've held) four press conferences, two ads and dozens of meetings
with government officials and concerned parties. Also, we have organized
plant tours and today 300 groups have taken the plant tours," said
Coke's spokeswoman Kari Bjorhus.
On Tuesday, India's health minister said CSE had failed to prove its
claims about the soft drinks.
But CSE denied the statement and accused the minister of pandering
to big multinationals at the expense of public health.
Having known of the problem for the last three years, Coke and Pepsi
should have worked more aggressively with the Indian government to
develop some sort of routine tests, according to crisis PR expert
"The problems they are having is that of a credible authority -- whose
tests do you really trust?" said Funke, a partner at CN Communications,
which specializes in crisis public relations. "It is a very emotional
issue whenever you have something you put into your body."
And Ries agreed, saying that "big companies deal with these issues
with facts rather than with emotions ... If I were the chief executive
I would get on a plane and go to India."
But their spokespeople said they were not aware of any trips to India
planned by soft drink chief executives in the coming weeks.
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