Coke's CEO Dishes: The Company Plans to Prey on Unsustainable Urbanization
As I sat in the plush confines of the Hotel Dupont's ballroom at the Coca Cola Company's annual meeting of shareowners last month, I listened as the CEO elect Muhtar Kent laid bare the company's duplicity.
Kent's deception was revealed in his guarantee of future growth for the company combined with some strategic greenwashing. He made it clear that the corporation's future will rely on and exploit rapid urbanization, a recognized problematic phenomena, while at the same time saying that the success of the business was based on the health of communities and the people it serves.
More specifically, he detailed how Coke's future profits would be based on three international mega-trends: i) rapid urbanization; ii) the rise of the middle class; iii) and the increased purchasing power of the middle class.
For shareholders and investors concerned with increasing returns on investment, these trends are very positive. According to Kent "it all boils down to the future of more consumers with more money, drinking more of our brands and beverages...we like those trends."
Kent followed this enthusiastic prognosis with Coke's new mantra that the financial health of the business is only as strong as the health of the communities and the people that the company serves.
In this instant the contradiction between corporate social responsibility and greenwashing floated to the surface of the rarified air of a packed Hotel Dupont ballroom.
When guaranteeing a profitable return to shareholders depends on exploiting and controlling resources and troubling social phenomena, rhetoric about sustainability rings hollow and self serving.
Coke in the big cities -- bigger problems and bigger profits?
Kent's excitement about urbanization is driven by recent United Nations Population Fund statistics that show more than half of the world's population is now living in urban areas. The figures show that this number is likely to increase. For Coke this is great news, more people living in less space means easier access to customers.
While the report argues that rapid urbanization can stimulate economic growth and reduce poverty -- if the urbanization is accompanied by proper urban planning and management, and this is a big 'if' -- it emphasizes that rapid urban growth in the global South is coupled with environmental and social problems.
Some of the problems caused by rapid urbanization include a concentrated social demand for human essentials such as drinking water and sanitation. Urbanization has also led to the expansion of city-based industries, which in turn exacerbate urban water supply problems. As a result, many cities in the global south are starting to turn to the countryside to find new sources of water, thus exporting an urban problem to rural areas creating social tensions and stresses on an increasingly scarce natural resource.
A clear case of this is taking place in MÃƒÂ©xico City where aquifers underlying the old part of city are so empty that the city is actually sinking. To deal with this lack of water, pumping stations and pipeline systems have been set up to exploit the watersheds of nearby rural communities to provide water for the ever expanding city. MÃƒÂ©xico's national Water Commission is actually taking control of lakes and rivers in nearby states with plans to redirect flow towards MÃƒÂ©xico City.
MÃƒÂ©xico City also provides a troubling example of how the Coca Cola Company is already actively exploiting the rapid growth and urban sprawl surrounding one of the globe's biggest megalopolises.
Coke, FEMSA and OXXO in MÃƒÂ©xico
MÃƒÂ©xico City's population has grown from 3.1 million in 1950 to close to 20 million today. Since the early 1990's growth in the city centre has stopped entirely and shifted to the outskirts where large housing developments targeted at middle- and low- income populations are exploding.
The shift of growth to the outskirts of MÃƒÂ©xico City can be attributed to urban planning policies, the lack of affordable land in the city centre, and competition between politically independent municipalities in the city's periphery. Between 1999 and 2005, 276,197 houses were authorized for the suburbs of MÃƒÂ©xico City for 1.24 million inhabitants. The vast majority of these dwellings have been constructed by large developers who capitalized on a number of policy changes that allowed them to purchase huge tracts of land in relatively remote areas surrounding the city.
In terms of quality, the houses are quickly and cheaply built, often fail to meet deadlines and at times are delivered without basic services such as water. The communities themselves have minimal infrastructure, are far from the city center for commuters, and lack planning for roads, public transportation, and public services.
This is exactly the kind of trend Muhtar Kent sees as a driver for profit growth at the Coca Cola Company. In fact the specific case mentioned here has already proven to be a boon for this company.
The rapid growth of housing projects ringing MÃƒÂ©xico City between 1999 and today occurred in tandem with the explosion in the number of convenience stores built in these developments throughout the country. MÃƒÂ©xico's biggest convenience store chain, Oxxo, is owned by Coca-Cola FEMSA. Thirty two percent of FEMSA is owned by the Coca-Cola Company.
In 1998 Oxxo opened its 1,000th store in the country. By the end of 2007, the company had opened its 5,563rd store nationwide, a total of 1.27 stores every day between 1998 and 2007.
Five hundred of these stores are located in greater MÃƒÂ©xico City region, up from 330 stores in 2004. Presently only Coca Cola brand beverages are sold in Oxxo convenience stores, thus guaranteeing a growth in revenue for Coca Cola FEMSA and the Coca Cola Company. In many ways, the incredible increase in Oxxo stores is driving FEMSA's profits and it is no coincidence that the increase in stores is coinciding with the explosion of housing developments in Mexican suburbs.
The ubiquity of Oxxo stores ensures that FEMSA will have a captive market for their products. It is no fluke that Mexicans drink more Coke per capita than anybody else in the world. It is also worth noting that former Mexican president Vicente Fox was the CEO of Coca Cola in MÃƒÂ©xico prior to being elected in 2000.
The new housing developments popping up around MÃƒÂ©xico City and in other large metropolitan regions of the country are perfect environments for these stores. With no local independent stores to compete with, Oxxos can enter the new neighborhoods and control what people buy.
This is the kind of trend that Muhtar Kent was getting understandably exited about. The Metropolitan region of MÃƒÂ©xico City, clearly show how urbanization is benefiting the Coca-Cola Company by helping their bottom line.
Kent's three global mega trends combined with a continued rhetoric of sustainability and corporate social responsibility are clearly not in agreement. This highlights the impossibility faced by many corporations who wish to cover up the damaging phenomena that drive profits with corporate social responsibility initiatives.
Coke needs rapid urbanization to succeed in the market place. The cases of housing developments in MÃƒÂ©xico City's metropolitan region highlight this contradiction.
The shareholder who stood up at the end of the meeting put it best when he addressed the CEO saying that "the Coca-Cola Company is not the conscience of the world, the Coca-Cola Company is not the policeman of the world, the mission of the Coca-Cola Company is to enhance shareowner value, and I think they do a terrific job at that."
I couldn't have put it better myself.