Message in a bottle charles fishman

909A08

FIJI WATER AND CORPORATE SOCIAL RESPONSIBILITY — GREEN MAKEOVER OR “GREENWASHING”?1 James McMaster and Jan Nowak wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2009, Richard Ivey School of Business Foundation Version: 2017-05-10 “Bottled water is a disaster, for several reasons. First there’s the issue of the sustainability of underground aquifers, from where much of the bottled water is drawn. And then there’s the carbon footprint. Water is heavy, and transporting it around the world uses a lot of energy.”

Jeff Angel, Total Environment Centre, Sydney, Australia2 “We survived before we had water in bottles. It is unnecessary. When you see water imported from Fiji in plastic bottles, you know it’s bad for the environment all round.”

Lee Rhiannon, Australia’s Greens MP3 “I think the world is slowly going insane. No thanks, but I prefer water in bottles, that way you know it’s clean and you know, healthy. Not a sacrifice people should make when plastic bags are still rampant. Those Greens are extremists and I don’t see this ‘tap water alternative’ ever being viable.”

Anthony L, N.S.W.4 “Consumers who choose FIJI Water will actually be helping the environment by taking carbon out of the atmosphere with every purchase.”

Thomas Mooney, senior vice-president, sustainable growth, FIJI Water, Los Angeles, California5 2008 was a trying year for FIJI Water LLC., a U.S.-based company that marketed its famous brand in more than a dozen countries out of its bottling plant located in the Fiji Islands. The company was facing some

1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of FIJI Water LLC. or any of its employees. 2 “Disaster in a bottle,” Sydney Morning Herald, April 24, 2007. 3 Kelly Fedor, “Greens call for ban on bottled water,” Livenews.com, March 22, 2008. 4 A reader’s comment posted on Livenews.com on March 22, 2008. 5 “FIJI Water Becomes First Bottled Water Company to Release Carbon Footprint of Its Products,” Press Release from FIJI Water, April 9, 2008, www.bevnet.com.

This document is authorized for use only by Carlos Izquierdo (carlosizquierdofortuno@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 2 9B09A008

complex challenges to achieve its goal of a carbon negative outcome at its production plant and in the transportation of its products, and to convince its consumers and other stakeholders that it was leading the industry in carbon footprint disclosure and offset. The environmental protest against bottled water in general, and FIJI brand in particular, in the United States, United Kingdom and other developed countries was gathering steam as the message on the carbon impact of bottled water was more and more widely publicized to consumers. FIJI Water was singled out as a primary example of “water insanity” due to the fact that the product was shipped from a remote island in the South Pacific to its main markets thousands of miles away. In response to this protest, the company launched a new promotion campaign under a slogan “every drop is green,” only to be immediately accused by environmentalist groups of engaging in greenwashing activities. The claim was also challenged by government watchdogs in some countries where FIJI Water was sold. At the same time, the company’s relationships with the Fiji government were at the lowest point. The government accused FIJI Water of transfer price manipulations and seized hundreds of containers carrying FIJI brand water. After assessing the company’s contribution to the Fiji economy, the government tried to impose a hefty tax on exported water and the company took the drastic action of laying off its employees in Fiji to pressure the government to repeal the initial 20-cents-a-litre tax that would have greatly reduced FIJI Water’s profitability by increasing its tax bill by about FJ$50 million per year. The company intensified its PR activities, focusing on its contributions to the local communities, to show how good a corporate citizen it was in Fiji. THE PRODUCT CONCEPT AND COMPANY BACKGROUND The product concept was developed in the early nineties by David Gilmour, the Canadian-born owner and founder of Fiji’s renowned Wakaya Island Resort. Simply put, the concept was to bottle Fiji natural artesian water and market it both locally and internationally as a unique and exotic product. An important aspect of the product concept was to bottle the water straight from the source — the source being an old artesian aquifer containing tropical rainwater, filtered for 450 years through layers of volcanic rock. The aquifer was found in the Yaqara Range of the Nakauvadra Mountains. Being separated by 1,500 kilometres of ocean, far away from major polluting sources, and being formed before any industrial activity could contaminate it, the water could only be of the purest quality and of distinct taste. Moreover, this silica-rich water was attributed anti-aging and immunity-boosting properties. The product was expected to appeal to health-conscious and image-oriented consumers.6 To extract and bottle Fiji’s artesian water, in 1993 Gilmour founded a company under the name Nature’s Best. In 1995, the company’s name was changed to Natural Waters of Viti Ltd. The first bottling plant was built in 1996 at the cost of FJ$48 million at Yaqara in Ra, on land sub-leased from the Yaqara Pastoral Company. The plant was built where the source of artesian water had been found.7 The site was in a remote and underdeveloped rural area of the island of Viti Levu that was poorly served with public infrastructure. The unpolluted, pristine location of the water source and factory guaranteed that the artesian water was of the highest purity. However, the site’s remoteness from the capital city of Suva, where Fiji’s main port is located, entailed higher road transport costs compared to other alternative mineral water sources. In 1996, FIJI Water LLC corporate headquarters was established in Basalt, Colorado, to handle the product distribution in the United States, which was intended to be the main market for FIJI Water.

6 James McMaster and Jan Nowak, “Natural Waters of Viti Limited — Pioneering a New Industry in the Fiji Islands,” Journal of the Australian and New Zealand Academy of Management, 9:2, 2003 (Special Edition on Management Cases). 7 Reserve Bank of Fiji, “Natural Waters of Viti Limited,” Briefing Paper, August 2001, p.1; and Ed Dinger, “FIJI Water LLC,” International Directory of Company Histories, 74, 2003.

This document is authorized for use only by Carlos Izquierdo (carlosizquierdofortuno@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 3 9B09A008

The production process began with the extraction of the water from a bore-hole. The water was then channelled through a pipe into the factory, treated and bottled in four bottle sizes: 0.33, 0.5, 1.0 and 1.5 litres. Using imported bottle caps, PET resin and labels, the bottles were manufactured by the company on its premises and were filled with water during the same production cycle. Bottles were packed into cartons for shipment to domestic and international markets. The cartons were made in Fiji by Golden Manufacturers.8 Rising demand for FIJI Water led to the construction of a new 110,000-square-foot, state-of-the-art bottling plant, completed in 2000. Demand continued to build in the 2000s, leading to the airlifting of a new bottling line in 2004 to help increase capacity to more than 50 million cases a year. The design and construction of the factory was regarded as among the best in the world, with high-quality and high-speed production capability. In 2004, the company was sold by its main shareholder, David Gilmour, to Roll International Corporation for an undisclosed price. Roll International was controlled by one of Hollywood’s richest couples, Stewart and Lynda Resnik.9 Following this acquisition, FIJI Water’s corporate headquarters was moved to Los Angeles. While the Fiji Islands-based operation focused on mineral water extraction, bottling and transportation within Fiji, the corporate headquarters handled marketing and logistics functions worldwide. The new owner expanded the Fiji plant’s production capacity by adding a new (third) bottling line in 2006. In 2007, the state-of-the-art factory could churn out more than a million bottles of FIJI Water a day.10 As of 2008, FIJI Water marketed its bottled mineral water in about a dozen countries in North America (including Mexico and the Caribbean), Asia-Pacific, Europe and the Middle East. It was marketed as FIJI Natural Mineral Water in Europe and as FIJI Natural Spring Water in Australia. The two main markets for the product were the United States and Australia. In the latter part of 2008, the bottling plant at Yaqara had about 400 employees. Of the total number of employees, only about 10 per cent were employed with the administration, finance and management sections; the rest were factory-floor workers. The company employed only a handful of expatriates and placed an emphasis on the hiring, training and advancement of the inhabitants of nearby villages, most of whom had little or no employment opportunities prior to Natural Waters of Viti Ltd. locating its factory at Yaqara. The company claimed to be one of the highest paying employers in Fiji.11 THE GLOBAL MARKET FOR BOTTLED WATER — CONSUMPTION TRENDS Sales of FIJI Water in the domestic market were relatively very small. More than 90 per cent of all production was exported. Therefore, for FIJI Water, global trends in bottled water consumption and demand were of paramount importance. Since the beginning of the last decade, the beverage product category had been shaken by rapidly changing consumer preferences that had led to a radical shift away from traditional beverages and toward “New Age” products, like bottled water. In fact, bottled water had been the fastest growing segment of the entire 8 Ibid. 9 Roll International also owned such companies as POM Wonderful, which produced and marketed juices and fresh pomegranates; Telesfora, the largest online flower shop in the world; Paramount Farms, the largest grower and producer of pistachios and almonds in the world; and Paramount Citrus, a leader in the California orange and lemon markets (www.roll.com). 10 Charles Fishman, “Message in a Bottle,” Fast Company, 117, July/August 2007, p. 110. 11 Company website: www.fijiwater.com.

This document is authorized for use only by Carlos Izquierdo (carlosizquierdofortuno@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 4 9B09A008

beverage business. As Exhibit 1 shows, between 2002 and 2007, the world’s bottled water consumption was increasing by 7.6 per cent annually and by 2007, reached close to 50 billion gallons (approximately 185 billion litres). As a result, by 2007, bottled water had become the second largest beverage category, after soft drinks. As Exhibit 1 also indicates, the United States was the world’s leading consumer of bottled water in 2007. Americans drank 8.8 billion gallons of bottled water, as compared to 5.8 billion consumed by Mexicans and 4.8 billion consumed by Chinese. Altogether, the top 10 consuming nations accounted for 73 per cent of the world’s bottled water consumption in 2007. However, it should be pointed out that China’s consumption grew the fastest among the top three consumers in the world between 2002 and 2007, at the compound annual rate of 17.5 per cent, which was twice the world’s average. Therefore, China was expected to become the largest consumer of bottled water in the world in the next decade. Another emerging big consumer of bottled water was India. Although not among the leading bottled water consuming nations in 2007, India had experienced one of the fastest growth rates in the world during the period shown in Exhibit 1, even faster than China.12 When per capita consumption was taken into account, the nations’ ranking looked different (see Exhibit 2). In 2007, the United Arab Emirates, Mexico and Italy showed the highest consumption per person in the world, and the United States was ranked ninth, with only a slightly higher consumption per capita than Hungary and Switzerland. It is noteworthy that Australia and the United Kingdom, two markets of interest to FIJI Water, were not among the biggest consumers of bottled water in the world, neither in terms of total consumption nor per capita. In 2007, Europe and North America were the biggest regional markets for bottled water, accounting for 30.9 and 30.7 per cent of the world’s sales volume, respectively. Asia accounted for 24.3 per cent and the rest of the world accounted for 14.1 per cent.13 FIJI WATER’S INTERNATIONAL MARKET EXPANSION While responding to those world market trends, FIJI Water had made its strategy revolve around capturing international market opportunities and strongly positioning the brand in large and growing markets for bottled water, but markets that were not overly price competitive, as FIJI Water, right from the beginning, was designed to be a premium brand. The first, and critical, international market to conquer was the United States. Conquering the U.S. Market To begin its international market expansion, FIJI Water was first launched in California in 1997, using Los Angeles and Palm Beach as a beach head for a subsequent and gradual roll-out of the product across the United States. In 1998, the company entered the sophisticated New York market, firmly positioning itself on the East Coast. At the same time, FIJI Water was also introduced to the Canadian market, starting with the country’s West Coast. The North American market provided the company with tremendous growth opportunities. The U.S. market, in particular, was so embracing that after about five years of the product’s presence there, FIJI Water had achieved the second selling position in the U.S. market among imported still water brands, and in 2008, it had climbed to the number one position among imported bottled waters 12 “The Global Bottled Water Market. Report 2007,” Beverage Marketing Corporation, January 2008. 13 Ibid.

This document is authorized for use only by Carlos Izquierdo (carlosizquierdofortuno@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 5 9B09A008

in the United States.14 Such a strong market position had been achieved in the market where competition was fierce and which was characterized by industry consolidation and the increasing dominance of major soft drink companies in bottled water marketing, such as Coca Cola and PepsiCo, which had entered the market with their own proprietary brands, Dasani and Aquafina, respectively. At the same time, FIJI Water had benefited from the overall beverage market trend that had shown a major shift in beverage consumption preferences in the United States. As Exhibit 3 shows, the per capita consumption of bottled water in the United States increased from 13.5 gallons in 1997, when the FIJI Water brand was introduced to the U.S. market, to 29.3 gallons in 2007, thus more than doubling. This was part of the exponential growth trend in bottled water consumption over a longer period, although growth clearly accelerated after 1990.15 The above shifts in the consumption of beverages could be linked to changing lifestyles and growing concerns of the effects of sweetened carbonated drinks on people’s health. The baby boom generation, which constituted about a third of the total population in North America, had become obsessively health- conscious and fitness-oriented. Bottled water had become popular among the younger generation as well. Over the last decade, bottled water had gained a reputation of not only being healthy but also a fashionable, elegant and “trendy” drink. In 2007, total U.S. bottled water sales surpassed 8.8 billion gallons, a 6.9 per cent advance over 2006’s volume level. That translated into more than 29 gallons per person, which meant U.S. residents drank more bottled water annually than any other beverage, other than carbonated soft drinks (CSDs). While CSDs still had volume and average intake levels more than twice as high as those of bottled water, the soft drink market had been struggling because of competition from bottled water. Per capita consumption of bottled water had been growing by at least one gallon annually, thereby more than doubling between 1997 and 2007. In 2007, U.S. consumers spent $15 billion on bottled water, more than on iPods or movie tickets.16 As Exhibit 4 shows, sales of non-sparkling bottled water by far exceeded sales of its sparkling counterpart. Also, between 2000 and 2007, non-sparkling water’s sales grew faster than those of sparkling water. At the same time, it is noteworthy that imported bottled water constituted only a little more than two per cent of the total sales of this product category, and imports tended to fluctuate widely from one year to another. The biggest sellers in the U.S. market were local brands, such as Arrowhead, Poland Spring, Zephyrhills, Ozarka, Deer Park, and Ice Mountain. The market was dominated by four large companies: Nestlé, Coca Cola, PepsiCo and Danone. Nestlé had the largest market share of all — in 2007 the company’s brands of bottled water accounted for 26 per cent of total sales of the product category.17 During the product’s introduction into the U.S. market, FIJI Water LLC was responsible for the marketing and logistics of FIJI brand. The company had two senior VPs, in charge of the East Coast and the West Coast, respectively, reporting to the company’s CEO, Mr. Doug Carlson.18 The successful launch of FIJI Water in the United States was attributed to a skillful marketing strategy and the high quality of the people who drove the initial marketing campaign.19 FIJI Water LLC’s marketing personnel were able to differentiate the FIJI brand in a crowded market where about 400 brands of bottled 14 “FIJI Water Becomes First Bottled Water Company to Release Carbon Footprint of Its Products,” Press Release from FIJI Water, April 9, 2008, www.bevnet.com. 15 “The Global Bottled Water Market. Report 2007,” Beverage Marketing Corporation, January 2008. 16 Fishman, “Message in a Bottle,” July/August 2007, p. 110. 17 Ibid., p. 115. 18 McMaster and Nowak, “Natural Waters of Viti Limited — Pioneering a New Industry in the Fiji Islands,” 2003, p. 42. 19 Paul Yavala, “FIJI Water Travels,” The Fiji Times, November 2000, p. 4.