Emerging Markets Encourage Good Environmental Practices in the Soft Drink Market
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Large multinational corporations are constantly criticized for the huge amount of resources which they use. The high population densities in many of the developing nations means the ability to simply transport and dispose waste in a Western fashion may not be sufficient. As this documentary shows, multinational corporations came into Egypt and attempted to use Western waste disposal techniques, but in the end the Government was forced to cancel some contracts. The poor who used to work the streets removing the waste and recycling were found to provide a better service than Western garbage trucks could do. Still, during a recent trip to Latin America I saw some interesting forms of recycling that show that some multinationals like PepsiCo (NYSE: PEP) and Coca-Cola Bottling (NASDAQ: COKE) are able to integrate environmentalism to the conditions of the local consumer.
Emerging market consumers do not have the same spending power as Western consumers. Innovative recycling systems in Chile allow consumers to save money while at the same time helping to drive revenue for the soft drink companies. In supermarkets and corner stores one can buy 2 liter bottles of soft drinks in specialized returnable bottles and save 10% to 15% on the purchase price. Used bottles are brought to the store at the time of purchase. This system helps to encourage recycling as the consumer is not forced to pay for recycling services or take a special trip to a recycling center. From the perspective of the state this system is great as it reduces the need to go out and create a special recycling service. This program is also beneficial for the soft drink corporations as it helps to reduce their environmental impact and generate healthy PR. From personal experience in Chile I can say that although per capita GDP is estimated to be around $16,100 the average person in a makes around $10,000 per year after tax. Interest rates on store credit cards around 20% to 40% per year and as such, every peso counts. Consumers are very happy to save what they can on everyday goods and necessities.
Corporations are working to save more than just plastic bottles. Coca Cola is striving to make great improvements in their water efficiency. From 2004 to 2010 they have consistently increased their water efficiency ratio from 2.70 to 2.26 liters of water per liters of product. Within Coca Cola's global operations there is still a varying degree of efficiency with North American plants being ran much more efficiency than those in Asia, Africa, and Eurasia. Dr. Pepper Snapple Group (NYSE: DPS) is another large beverage company but it has nowhere near the breadth of Coke or Pepsi. Latin America only contributed 7% of net sales in 2011 yet they are hoping to improve their water efficiency ratio from 1.97 in 2011 to 1.77 in 2015. Pepsi is also working to reduce their water efficiency. In 2009 their Indian operations achieved a positive water balance. A third party confirmed that the company returned more water to the nation than that which is used by the production facilities.
The environmental impact of beverage producers can have a very important effect on the ability to grow and sustain profits from emerging markets. When a large multinational like Coca Cola goes in and destroys the lives of local farmers there is always the risk of eventual political repercussions. The idea of an anti-imperialist message is rather strange to American ears but countries like India take the battle for self-determination very seriously. When a foreign company is painted as an enemy of the people import tariffs and difficulties with the local government can have a serious impact on the bottom line. Emerging markets are unique and healthy environmental practices show that Coke, Pepsi, and Dr. Pepper are trying to take positive action to help reduce future conflicts over water local water resources.
MrCanadian1 has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
