Beverage Bigs Battle Bottle Backlash
By Kenneth Hein
Brand Week
February 17, 2008

The beverage giants are hoping a little goodwill goes a long way.

Faced with evaporating sales growth for bottled water and increased concerns about their products' impact on the environment, PepsiCo and Coca-Cola are fighting back with charitable ties and A-list celebrity endorsements.

PepsiCo will make a splash around World Water Day (March 22) by leveraging its relationship with Matt Damon. The film star will promote his H20 Africa clean water initiative, to which PepsiCo donated $2.5 million, in a print pitch next month, sources said. The star of the Bourne series also is expected to trumpet the mission of Ethos bottled water. Details were not yet finalized.

PepsiCo will begin national distribution of Ethos later this month under its North American Coffee Partnership with Starbucks. Formerly, Ethos was just sold at Starbucks locations. For every bottle sold, a nickel goes to helping children around the world get clean drinking water. The goal is to raise $10 million by 2010.

Not to be outdone, multiple sources said, Coca-Cola North America is developing plans for its own socially responsible water brand. One source familiar with the project said it was placed on the front burner by Brian Kelley, its new president and general manager of still beverages. Kelley was promoted late last year and now oversees all of Coke’s noncarbonated brands. The entry could launch as early as this summer.

Kelley also is said to be looking for a superstar with which to co-brand the new beverage. Angelina Jolie and Brad Pitt are atop his wish list, per the source. (Pitt’s publicist vehemently denied the actor’s involvement with any Coke project. A Coca-Cola rep declined comment.)

The efforts come as the $16 billion bottled water segment is suffering on two fronts: shifting consumer tastes to teas, enhanced waters and energy drinks; and plastic PET packaging which has environmentalists up in arms. San Francisco mayor Gavin Newsom went as far as banning the use of city funds to purchase bottled water last summer.

Sales have slowed considerably. This week, Beverage Digest will report that 2007 sales growth was about half that of the year prior. For the first time it only grew in the high single digits across all channels compared to 20% in 2006. Some segments, like bulk packaging (one gallon and over) in the supermarket channel, are in decline (sales fell 4.9% in 2007).

“It’s definitely slowing. The category has gotten very big and now consumers are experimenting,” said John Sicher, editor of Beverage Digest, Bedford Hills, N.Y. “They are very rapidly looking into new kinds of beverages.”

Still, for many the specter of landfills brimming with discarded plastic bottles is too much to bear, said Bill Sipper, senior partner at the food and beverage consultancy Cascadia Consulting, Ramsey, N.J. “Everyone acknowledges there is a concern,” he said. “Ninety-seven percent of all bottled water sales are in plastic. It’s horrible to think about.”

One effect has been a surge in sales of Brita water devices (up 19.6% to $55.3 million) and filters (up 6% to 96.5 million for the 52 weeks ending Jan. 27, 2008), per IRI. In a conference call this month, Don Knauss, CEO of Brita’s owner, Clorox, said that “we’ve eliminated about 30-40,000 plastic throwaway bottles” thanks to partnership with reality show The Biggest Loser.

Compounding the matter are major concerns that bottling plants are contributing to water scarcity overseas. Most recently, a report conducted by the independent Energy and Resources Institute in New Delhi cited steps the bottling plants can to take to work more effectively with the communities in India on water sustainability.

A Charitable Solution?

The beverage giants are responding by acknowledging those crises and linking their water entries to charitable causes. PepsiCo announced last month at the World Economic Forum in Davos it will donate $2.5 million to Damon’s H2O Africa charity. The clean water initiative ties in with his Running the Sahara film project which is set for release in April or May. The film will document three men who ran 4,000 miles across the desert to raise awareness of the water crisis in Africa where one child dies every 15 seconds from dirty water.

Additionally, under its charitable arm the PepsiCo Foundation, the company also delivered a $6 million grant to the Earth Institute at Columbia University. The institute is working to develop solutions for global water scarcity. The foundation pledges to bring more than one million people safe drinking water by 2010. Similarly, Coke has partnered with organizations like the World Wildlife Fund as part of its commitment to water stewardship and sustainable communities. Nestlé also regularly works with policy makers and is a partner with Project WET (water education for teachers).

Running the Sahara’s producer and founder of H20 Africa, Larry Tanz, said PepsiCo’s partnership was a perfect fit because it aligns “with PepsiCo’s corporate objectives and helps us go out and execute water-related projects.”

Damon was unavailable for comment. Last week he was on location in Morocco shooting a Paul Greengrass project filming under the name The Green Zone.

The Ethos Water Fund has donated $4.2 million in grants to support water, sanitation and hygiene education programs. On March 22, Ethos and nongovernmental organization partners will host “Walks for Water.” The events, inspired by the journey women and children in water-stressed countries make each day to get clean water for their families, will take place in New York, Los Angeles, Seattle and other cities.

Not everyone believes such charitable efforts will reverse the industry’s bad pr. The Damon connection “may go a long way with the Sundance/Prius crowd, but not necessarily with the hard core live off the grid crowd,” said Ted Wright, managing partner of Fizz, a word-of-mouth beverage company based in Atlanta.

Jonathan Greenblatt, one of the founders of Ethos, applauded PepsiCo: “The vision was to help children of the world get clean water. This allowed us to scale the brand enormously . . . I hope Coke copies it, and Nestlé; what could be better?”

Ethos is not the first of its kind. Keeper Springs has raised more than $500,000 for environmental charities since Robert Kennedy Jr. founded it in 1998. Unlike Ethos, all profits go to charity. That turned off Starbucks, with whom the organization had discussions five years ago, and Pepsi, which they tried to contact through intermediaries. “It’s too dangerous to declare 100% of the profits,” said Keeper Springs manager Chris Bartle. “Bobby and I don’t take salaries.”

Additionally, pushing a for-profit product has been difficult as evinced by the mixed reaction Project Red received. That brand, which tied in with Gap and American Express, among others, was criticized for not giving enough to its stated cause, Africa. “With Red, consumers were initially shocked. They said, “What do you mean you’re making money?’” said Dean Crutchfield, svp-marketing at brand consultancy Wolff Olins, New York, which worked on Red. “People were initially upset.” Crutchfield said now the idea of for-profit philanthropy has become more accepted. “People don’t want the new marketing gadget of the 20th century, they want functionality and additional relevance. Doing something good is where the power will be.”

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