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Year 2003 has been devastating for American soft drink giants Coca-Cola and PepsiCo, in India, with the pesticide controversy taking an unprecedented toll not only on their public image but also on sales, a mid-year price cut notwithstanding.
The Centre for Science and Environment, on August 5, alleged that 12 brands of Coke and Pepsi contained pesticide levels many times higher than the permissible limits.
According to the tests conducted by the Pollution Monitoring Laboratory of CSE, all samples contained residues of four extremely toxic pesticides and insecticides: lindane, DDT, malathion and chlorpyrifos.
The PML team involved in the tests was Dr H B Mathur, Dr Sapna Johnson and Avinash Kumar.
Three samples each of the 12 brands purchased from markets across Delhi, analysed in April-August and found to contain pesticides residues were Pepsi, Mountain Dew, Diet Pepsi, Mirinda orange, Mirinda Lemon, Blue Pepsi, 7-Up, Coca Cola, Fanta, Limca, Sprite and Thumbs Up.
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And even five months after the CSE assertion, officials of both companies admit the damage done by these accusations have been far-reaching. Sales have been hit substantially and refuse to show an uptrend despite large-scale damage control including advertisements proclaiming the companies' innocence.
For Coke it was even worse. Former Miss Universe Sushmita Sen accused a senior Coke India official with sexual harassment. The legal wrangle ended when Coke reached an out-of-court settlement with Sen. Till the end Coke, however, denied that it had anything to do with such allegations.
Coke, after failing to gain a reprieve despite hectic lobbying with the government, also had to divest 49 per cent stake in Indian operations in the beginning of the year in favour of resident Indians so that the Atlanta-based parent company's hold over Indian operations weakened.
The only silver lining in the dark clouds hovering over this industry was a tremendous consumer response to the mid-year price correction, when both companies introduced 200 ml size for Rs 5 and further reduced the price of the standard 300 ml version in order to boost sales.
And even as the pesticide controversy refuses to die down, Coke, Pepsi plan to launch regional products and variants appears to have backfired. The fruit-flavoured variants of Fanta launched earlier this year by Coke did not appear to have been well received in the market. Regional brands the company introduced including Rimzim and Portello have also apparently met the same fate.
Fanta was launched in green apple and watermelon flavours but appears to have been withdrawn; masala soda drink Rimzim has also been withdrawn. Pepsi followed the same path and its Mirinda brown apple appears to have met the fate of Fanta variants.
Coke also ventured into hot drinks -- tea and coffee -- under its global brand Georgia. Although Coke officials said the products were "doing well", there is no statistics to support their claim.
So, as 2003 draws to a close, the soft drink industry is still trying to come to terms with the pesticide controversy, which is being kept alive by a Joint Parliamentary Committee probe, which is still continuing.
The one positive fallout of this controversy has been the coming together of archrivals Coka and Pepsi in India to fight against CSE's allegations that it has succeeded in exposing chinks in the armour of both government and multinational companies and their respective quality checks.
At the end of a tumultuous year, Coke has taken several steps to refurbish its image, including signing on a public relations firm and planning top-level management changes.
In a recent move, the government said it could consider revocation of the entry-level condition requiring multinationals to mandatorily divest equity in favour of resident Indians. If this condition is waived, Coca-Cola India could well again become a closely-held company.
While this may not be good news for Indian investors, it could mean greater investment by the parent company in Indian operations than at present. Pepsi has already announced buyouts of some bottlers in the northern region as part of consolidating CoBos (Company-owned bottling plants) and has announced substantial investment in Indian operations.
However, the basic problem faced by these companies - high and arbitrary rates of taxation across different states - has led to rising accumulated losses. Unless this anomaly is corrected, their financial position in India may continue to be weak.