Global Economics

Coke's Newest Headache


First, it was American nutritionists. Then, Indian environmentalists. Now, soft-drinks titan Coca-Cola (KO) has another determined adversary nipping at its heels: British university students concerned over human-rights issues. In mid-August, the students' union at University of Sussex in southeastern Britain banned all Coca-Cola beverages from student-run bars and shops, citing alleged human-rights abuses in Colombia by the Atlanta-based company. At least four other student unions around Britain are considering similar campus bans.

Student boycotts are nothing new: Recall the Nestl?? baby-formula protests on U.S. campuses in the 1980s and more recent rallies against Nike (NKE) for alleged sweatshop conditions in its overseas factories. But the Sussex ban??nd the possibility of more around Britain??ouldn't come at a worse time for Coke.

The company is already facing an increasingly health-conscious market that has kept U.S. growth of its sodas at just 0.4% annually over the past five years. And since the beginning of August, Coke and arch rival Pepsico (PEP) have taken a bruising in India after allegations of abnormally high pesticide levels in their drinks led to scattered sales bans around the country (see BusinessWeek.com, 8/10/06, "India: Pesticide Claims Shake Up Coke and Pepsi").

BUDDING MOVEMENT? Compared with the situation in India, the British campus ban likely won't amount to even a drop in the bucket for Coke. Annual sales of the affected products at Sussex were just $333,000. "A boycott at one institution will not have any material impact," says Robert van Brugge, beverages analyst at brokerage Sanford C. Bernstein in New York, who figures that sales to schools and universities account for less than 1% of Coke's sales in Britain. His revenue and earnings forecasts for Coke are unchanged this year at $23.7 billion and $5.5 billion, respectively.

Still, the campus movement has caught the attention of the press and the public in Britain??nd drawn renewed and uncomfortable attention to long-standing human-rights claims against Coke by activists in the developing world. "It's another headache [for the company] that reflects the changing attitudes toward healthy eating and responsible consumption," said Richard Buchanan, head of corporate branding at branding consultancy Corporate Edge in London.

Coke also runs the risk that the movement could spread. Though Sussex is the first British university to take this step, more than 20 schools in the U.S. and Ireland have already voted to support an international boycott against Cola-Cola for allegedly ignoring the murder of eight union organizers in Colombia in 1996 and turning a blind eye to anti-union violence in the country over the past 15 years (see BusinessWeek.com, 1/23/06, "'Killer Coke' or Innocent Abroad?"). A Coca-Cola group spokesman in Britain says the company "respects the right of each individual university to take its decision, but it's an isolated decision."

Britain's National Union of Students (NUS), which represents college students at some 300 universities around the country, has declined to adopt a nationwide boycott. The group considered and rejected a blanket ban earlier in the year, opting instead to engage in "constructive dialogue" with the company about ethical issues, a NUS spokeswoman says. NUS Services, which provides the catering for the National Union of Students groups, said it has no plans to cancel a four-and-a-half year, ??15 million ($28.4 million) contract with Coke. However, member unions at each school retain the right to make their own decisions.

SYMPATHY FOR INDIA. That's what happened at Sussex, where students voted to remove Coca-Cola beverages from three union-owned bars and two campus shops until there has been a "decent investigation" into the Colombia events, says Sussex student union president Dan Glass. (Facilities operated by the university, such as dining halls, shops, and vending machines, will still offer Coke products when the school term starts this fall.)

"Multinationals only understand one language, and that's the language of money," Glass says. "Our aim is to use the tools of procurement and consumer choice to effect change." The ban is also meant to highlight alleged environmental harm by Coke in India, Glass says, where he claims bottling plants have depleted water tables.

This is a separate issue from the flap over reports published by environmental groups in India this summer that showed that Coke and Pepsi drinks contained levels of pesticides well above proposed Indian safety standards. Though Coke cited research from overseas labs certifying product safety, and India's Health Minister openly questioned the validity of the methods the environmental groups used, the damage was already done. Several of the country's states have now moved to halt sales of the soft drinks (see BusinessWeek.com, 8/23/06, "Behind the Coke-Pepsi Pesticide Scare").

NO FUN. In the wealthy West, Coke also must contend with growing health concerns over high-sugar carbonated drinks. Some schools in the U.S. and Britain have banned soda pop amid worries about child obesity, while consumers increasingly favor healthier alternatives such as fruit juice and bottled water. Coke is trying to diversify, but 80% of its unit volume still comes from carbonated drinks.

The string of woes has already taken some toll on Coke. Its shares have traded flat for the last year, and the value of the Coca-Cola brand slipped 1% in the last year, according to the most recent BusinessWeek/Interbrand Annual Ranking of the Top 100 Global Brands (see BusinessWeek.com, 8/7/06, "The World's Best Brands").

Still, Coke remains a clear No. 1 in the global brand rankings, and the new British boycott isn't likely to do much long-term damage unless it snowballs into a global movement. Though news of the campus ban is "undesirable, it's not in any way catastrophic," says Alex McAuley, senior consultant for brand valuation at Interbrand in London. If the human-rights claims were ever fully substantiated, that could "erode Coke's perception as a fun and carefree brand," McAuley says. But for some British students with ethical concerns, the fun is already over.


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