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Climate Change Forcing Beverage Markets to Adapt

02/26/2014 10:51 am 10:51:31 | Updated Apr 28, 2014

Last month, the Seattle Times reported on a White House state dinner in honor of President Francois Hollande. The wines were chosen for being among the U.S.'s vineyards that are owned or run by French vignerons and included Long Shadow's Chester-Kidder red blend 2009 from Walla Walla, Washington.

It's not the first time a presidential dinner has included wines from the Pacific Northwest. The same vineyard has provided wine to at least four state dinners. Washington State wines won international competitions.

The fact is, the climate has changed so drastically that Washington State -- and England and China -- are becoming prime regions for wine growing. Global warming and its freak weather events are destroying the once great terroirs of France and California. Vintners, whose reputations and positioning have for centuries rested on the special soil and climate of a certain place (think Champagne), are repositioning themselves from unique land-based attributes to superior skills and experience.

Economist Joseph Shumpeter described this necessary form of business evolution: "creative destruction, (which) incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Wine is not the only industry experiencing creative destruction brought on by threats to vital natural resources. Another well-known example is Coca-Cola's extreme issues around water for both its production processes and its products themselves.

The company's 2013 Water Stewardship & Replenish Report attempts to minimize damage to its reputation. But pain inflicted by its water misuse has gotten widespread publicity, particularly in India where, since 2000, the company has overseen the over-exploitation of limited water resources and the contamination of groundwater supplies that is bankrupting farmers and driving some to suicide.

The cost to Coke of water in India? Virtually free. But the repercussions of its water misuse have included fierce battles with local authorities that temporarily closed the Kerala plant, costing it millions.

Coke's public response to its water problems seems admirable. A 2010 CNN Money article reported that "Coke has been a leader when it comes to environmental issues: It is aiming to be water neutral -- meaning every drop of water used by the company will be replenished -- by 2020."

But despite its commitments to water neutrality, Coke still has a long way to go. CSRHub rates its environmental performance only slightly above the beverage industry average. As the leader of the global beverage market, Coke should be doing better.

And not just because of the moral imperative or for good PR. When water becomes scarce or expensive, Coke's business is threatened. How can Coke expand into products that don't require water while retaining its franchise in sugar drinks? How does it beat back new water-free competitors such as SodaStream?

The answer is to join them. Earlier this month, Coca Cola announced a deal with Green Mountain Coffee Roasters to sell its drinks through subsidiary KeurigCold, an in-home soft-drink dispensing system. As The Wall Street Journal explained:

"Coke is spending $1.25 billion to buy a 10 percent stake in Green Mountain, which is planning to introduce a new home soda maker to go alongside its Keurig single-serve coffee makers. And Coca Cola's drink brands -- Coke, Fanta, Sprite, Powerade and many more -- will be making appearances in the new machines."

The surprising thing about the announcement is that unlike SodaStream, which touts its products as being environmentally friendly or "without the bottle," Coke's press release makes no reference to its new product's sustainability. The largest beverage company in the world is touting this purchase as a competitive decision without trying to use it to blunt criticism over water use.

Potentially even more dire, the pods fight with Coke's most enduring symbols, the Coke bottle and can.

Coke's Green Mountain partnership is a perfect example of creative destruction working to benefit climate change adaptation. In a 1997 update to Shumpeter's theory, Clayton Christensen's The Innovator's Dilemma says that there are times when it's smart not to listen to current customers but to pursue small markets at the expense of larger and more lucrative ones. Climate change is pushing business to take more of the kind of risks that Shumpeter and Christensen advocate, often benefiting both business and the planet, even without exploiting sustainability in its branding. That's CSR at its very best.