INDIA: Pesticide Charge in India Hurts Pepsi and Coke

When claims were first published on the front pages of Indian newspapers this month that Coca-Cola and PepsiCo beverages were contaminated with pesticides, executives at the two companies were breezily confident that they could handle the issue.

Three weeks later, though, they are still struggling to win back Indian consumers. One-quarter of India's component states have imposed partial bans on their products, and a complex legal battle to overturn those bans is only just beginning.

Both companies acknowledge that they miscalculated, and stumbled badly, in their initial response to the pesticide allegations, raised in a report by an Indian environmental group. They underestimated how quickly the matter would spiral into a nationwide scandal. They misjudged how quickly local politicians would seize on the issue, in a country that tried for decades to shield its economy from multinational corporations and still views them with some suspicion. And they did not move swiftly themselves to quell the anxieties of their customers.

In short, two of the world's biggest brand names failed to do what they do best: pitch the virtues of their products directly to their customers.In some ways, the immediate response from Coke and Pepsi came right out of a crisis-management text book. As soon as the environmental group, known as the Center for Science and the Environment, announced its finding that soft drinks manufactured by the two companies in India contained, on average, more than 24 times the amount of pesticide residue that is considered safe, the companies formed committees in India and the United States to deal with the issue. They commissioned their own laboratory tests to rebut the report and worked in parallel around the clock on legal and public-relations responses.

But they decided early on to wait for the lab results before commenting in detail on the accusations, and that decision seems to have backfired badly. The companies' reticence merely fanned consumer suspicions, and they soon got bogged down in the technicalities of the allegations, instead of focusing on winning back the emotional support of their customers.

"They got behind the curve, and now they are chasing the crisis," said Richard Levick, president and chief executive of Levick Strategic Communications, a Washington-based consulting company specializing in advising businesses in crisis.

Executives concede that the situation has been difficult for them.

"We have some way to go to restore consumer confidence in our brands," said Kari Bjorhus, Coca-Cola's communications director in India. Rajeev Bakshi, who heads Pepsi's Indian operations, agreed that there was much work to be done. "Has our side of the story got across to the consumer yet?" he said. "Not really. I am concerned about that."

The two companies initially thought they knew how to handle the problem, in part because they had been through it once before. A similar report from the same environment group in 2003 also claimed pesticide contamination in Coke and Pepsi drinks.

Even so, both companies appeared to be unprepared for the political fallout this time.

One state after another banned the sale of Coke and Pepsi products in government offices, hospitals and schools within days of the group's report. In Kerala in the south, a left-leaning state government went even further, banning all production and sale of colas, but populist denunciations of the cola companies have come from politicians of all stripes, not just the left. "We were a little surprised and disappointed by the bans," said Kenth Kaerhoeg, group communications director for Coca-Cola Asia, who flew in from Hong Kong to help tackle the problem. "These decisions are unfair. We would have expected politicians to make their decisions on the basis of facts and not reports."

The companies are asking themselves whether corporate heirarchy and the need to clear important decisions with headquarters on the other side of the world may have hampered their response.

"After any big event, we do learning sessions, videoconferenced meetings, to discuss how we can improve," Mr. Kaerhoeg said. "Definitely there will be learnings for us as a company this time around."

But Coke and Pepsi should have known better, said Suhel Seth, a leading public relations expert in India and an adviser to Coca-Cola India. "Fringe politicians will continue to be publicly hostile to big Western companies, regardless of how eager they are for their investment," Mr. Seth said. "Large multinational corporations are still seen by pockets of consumers and opinion makers as marauders and not as contributors."

Mr. Levick, the American consultant, agreed. "They underestimated their own importance," he said. "Much more than companies, they are symbols of the West. They don't realize how powerful that is."Because they failed to anticipate the political potency of the story, Coke and Pepsi said too little in the first days of the crisis, Mr. Seth said.

"In the U.S. and the West, there is a certain dignity to silence," he said. "But here people interpret silence as guilt. You have to roll up your sleeves and get into a street fight. Coke and Pepsi didn't understand that."

Coca-Cola officials in Delhi also tried to attack the allegations indirectly, by giving briefings for reporters in which they questioned the scientific credentials of their accusers, directing reporters to Web logs filled with uniformly pro-Coke entries, and handing out the cellphone number for the director of an organization called the Center for Sanity and Balance in Public Life.

The founder of that group, a management-college graduate named Kishore Asthana, gave callers a Coke-friendly gloss on events, while insisting he was not in the pay of the industry. "One can drink a can of Coke every day for two years before taking in as much pesticide as you get from two cups of tea," he told reporters.

But public relations experts said this indirect approach on Coke's part may have been unwise.

"Crisis abhors a vacuum," Mr. Levick said. "They needed to show leadership. These minimalist statements were not adequate."

In any case, the strategy did not stop the crisis from growing much worse, as newspapers printed images of cans of the companies' drinks with headlines like "Toxic Cocktail" and news channels broadcast images of protesters pouring Coke down the throats of donkeys.

Although India accounts for only around 1 percent of Coca-Cola's global sales volume, the country is seen as central to Coke's long-term growth strategy. So, sensing the situation was getting out of control, Coke eventually decided to change tack and address customers directly, printing an advertisement asking, "Is there anything safer for you to drink?" and inviting Indians to visit its plants to see how its beverages are made.

Coke officials said the company had received about 2,000 calls from people interested in a tour, and said that consumers are often reassured by the sight of the water filtration system used in its factories.

It did not help that the pesticide issue is a complex one. Standards for safe pesticide levels in drinks have been agreed on in India but never made a legal requirement. The industry continues to argue over whether to test the water going in to the drinks or the finished product. There is also debate over how to cleanse sugar of pesticide traces, and a recognition that India's ground water generally is so badly contaminated that most food products contain some pesticide residue.

Asim Parekh, a vice president of Coca-Cola India, said his heart sank when he heard first heard the allegations, because he knew consumers would be easily confused .

"I have tried my level best to communicate this information," he said. "But even terminology like PPB - parts per billion - is difficult to comprehend. This makes our job very challenging."

Mr. Bakshi, the Pepsi executive, also struggled with the message. "The subject is extremely technical," he said "It is hard to explain the entire story. "

AMP Section Name:Health
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