Commodity Chain Analysis: Water Commodity

Commodity Chain Analysis: Water

Commodity Chain Analysis Paper: Water

Aquafina Bottled Water (Pepsico)

The increased popularity of bottled water over the last ten or so years has led to many questions about its position in the market, as well as regarding its health beliefs and its impact on the environment, both in packaging and in trapping a once free flowing commodity in a salable form. "Over the past several decades, the bottled water market in North America has experienced significant growth. Between 2002 and 2007 alone, the typical American's bottled water consumption rose by nearly 50% and has grown by more than 20-fold since 1977." (Quantus 2010, p. 1) This work will identify a single brand of bottled water, namely Aquafina, due both to its popularity as a product and because the product is utilized by many individual consumers on a daily basis. The work will analyze the product and its impact on the worker at points of production and distribution and finally briefly its impact on the individual consumer. Aquafina is a brand developed and marketed by the Pepsico company. In brief this product is a product used by me on a daily basis as it is something I plan for, budget for and drink at least two or three times a day. I have been drinking bottled water for more than 10 years on a daily basis and have even become brand sensitive to this product, which it turns out might not actually be that good for me, as all the mineral content has been removed from it and none has been added back, like Dasani its nearest competitor distributed by Coca Cola. Nonetheless for several reasons not the least of which is health and taste bottled water and specifically Aquafina has very much become a necessity in my life.

Issues Workers Face

Workers for Pepsico in the U.S. tend to be well treated and work in fair environments with good conditions and comparable pay to other factory workers in the food and beverage industry. This is not to say that factory work in general does not offer up a whole host of potential problems and issues, often associated with mechanization and the potential for injury, as well as the fact that the protection of the product integrity is often the overshadowing force behind conditions. Rooms might be kept very cold and workers are expected to dress to control their own body temperatures, as well as several other human safety, injury and other comfort concerns. Mechanization often involves the exposure of workers to significant risk for injury, broken limbs, cuts and bruises are likely a very common even in many food and beverage factories, and deaths, though not really common do sometimes occur as a result of humans and machines working in the same space. One of the biggest concerns with factory work is the scheduling of time according to the product and in the case of water demand for it, rather than with attention to human concerns. Factory workers in the food and beverage industry often work standing and in an assembly line fashion where they are responsible for a single aspect of the process which is often the source of repetitive motion injuries and such. Slips and falls are also often an ever present threat and factory floors are often wet and require rigorous and constant cleaning and maintenance. Factories in the U.S. are likely to have a great deal of skid and slip protection surfaces as well as padding that attempts to mitigate the standing and stationary nature of the job, though there is some evidence that such concerns are much more limited in international settings and injuries are more common.

The high frequency of workers interacting with machines means that, if proper precautions are not taken, disastrous accidents may result. Factory workers are put at risk of injury whenever safety procedures are not followed. The following potential hazards may lead to serious accidents when not dealt with appropriately:

Intentionally "cutting corners" on regulations to cut factory costs

Accidentally overlooking a safety violation

Operating machinery without using proper safety equipment and safeguards

Not regularly maintaining heavy machinery and equipment

Improperly storing equipment or chemicals

Using defective machinery

When the above safety hazards are not addressed, workers are put at risk of being involved in an accident. Running an unsafe factory leaves open the possibility of accident and injury occurring, which may include:

Heavy machinery malfunction

Slips, trips, and falls

Exposure to toxic chemicals or other hazardous materials

Falling objects or overturned equipment

Explosions

Emergency exit blockage

Most factory workers understand that there is a certain level of risk in their daily work, but like all workers they are entitled to a safe work environment that meets safety regulations. Factory companies are obligated to meet safety standards to keep workers free from harm. ("Factory Accidents & #8230;" 2010)

Accidents and injuries are an ever present issue in food and beverage factory work. Additionally, logistics and distribution workers also face the common concerns regarding heavy lifting, mechanization and transport of the product in the warehouse and outside of it and other work potential risks.

Commodity Chain

The big names like Coca Cola and in this case Pepsi (co) like to stress the fact in print that their bottling plants and distribution chains are local but what that really means is that they are local in the scale and scope of the company itself. In other words because Pepsi (co) is a multibillion dollar international brand they have "local" bottling and distribution centers in the individual nations where they do business. In the U.S. Aquafina water is bottled and distributed from at least 40 sites in the U.S. And Canada (Aquafina Website) . The water is derived from a municipal source, which means it starts out as Wichita tap water and then goes through a seven step filtration process that removes all of its mineral content, good or bad, resulting in Pepsico's belief in their signature crisp taste. So, this means that in a plant in Wichita, or one of the other hubs a municipal water source is piped in and then the water passes through this multistep process:

Aquafina originates from public water sources and then is purified through a rigorous, seven-step process called HydRO-7™. This is a state-of-the-art process that includes reverse osmosis and other filtering and purification methods. It removes things like chlorides, salts and other substances that can affect a water's taste. Every bottle of Aquafina is produced at one of our water purification centers through the HydRO-7 ™ process. That's how you know you're getting pure water and consistent taste every time you open an Aquafina. (Aquafina Website: How is Aquafina Purified)

According to the company this is why they can have so many sites, because the water coming in matters little to the quality and consistency of the water coming out. True local distribution has become possible only due to this process as they do not have to use "special" water to derive the same product. There is a great deal of debate about the health of such water but it nonetheless seems to be one of the most popular of all marketed products in years and has what many would consider a near complete profit margin, as the cost of the initial product is nearly negligible and only the process to achieve a finished product as well as packaging is important.

Initially, the Pepsico brand licenses the Aquafina label. Research and development are a part of the initial and ongoing mission of Pepsico to potentially expand source distribution to make it more local as well as to produce a consistent product. But as an example a bottle of water that was bottled in New York City is distributed as far away as Portland, or (notably a town known for its green lifestyles and local emphasis, and a large consumer of "healthy" products including but not limited to bottled water) Distribution chains are said to be decreased, logistically speaking as a result of the multi-source plant system but the water still must travel significant distances, in most cases to supply consumers, such as is the case in Portland, or. Additionally, logistics for packaging is also important. The sales price of Aquafina is nearly equivalent to less "healthy" beverages and the company has the distinct advantage of a huge pre-existing distribution network, comprised of literally millions of store-shelf space equations, already a part of the distribution network for their other products.

Retailers have the last word in how much shelf space the product will take up but at the same time companies like Pepsico have considerable contract pull for placement, as if one product in their line is selling at a lesser rate than another it often has the authority to redistribute the products across shelf space in individual locations and this is an even stronger pull where larger companies are retailing the product. Additionally, Pepsico like Coca Cola has exclusivity in contract restaurant sales, so for example if a chain (or even a privately owned single location) restaurant contracts with a local distribution network for a specific soda brand they are then only offered that product's line, and can be censured for offering another, on tap or in bottle form. Though municipal untreated tap water can be used for premix (as opposed to post mix when soda syrup was mixed on site) that comes from the beloved soda fountain in most restaurants the marketing of the Aquafina brand is still likely to be present and bottled Aquafina is often sold there. If on the other hand an individual asks for a cup for water and then pours water from the "water" bypass tap on the soda fountain they are getting municipal tap water, usually unfiltered.

Endorsements are often developed in a similar way to those associated with other types of soft drinks and sports endorsements are common in the bottled water industry as even the Aquafina spin off products that contain the Aquafina (seven step) water and additional flavorings and sweeteners are considered by many to be healthier than soda, but to some degree this remains to be seen. As an example:

Aquafina is the "official" water of the Major League Baseball. In addition, Aquafina is the "Official Bottled Water" of the PGA of America (including the PGA Championship, PGA Grand Slam, U.S. Ryder Cup and Seniors' Championship), the Atlantic Coast Conference (ACC) and the Arizona Diamondbacks baseball team. (Aquafina Website: Help/FAQ)

Individual celebrity endorsers often come from these sports and seek sales to demographics, associated with their fan base

Municipality of the local bottling site provides the raw materials for the product, i.e. The water. While the plastic and labeling aspects of the product are usually subcontracted to either an outside provider/manufacturer or an inside company production line that has a more central location (likely only 1 or 2 in the U.S.). Pepsico has responded to environmental concerns about the lack of biodegradation of their plastic bottles by coming out with a new bottle that is said to use 50% less plastic than the 2002 bottle (Eco-Fina, and independent trademarked label), but has failed to respond to concerns about product distribution and localization of services and logistics.

Conclusions and Connections to the Global, Cultural Political and Economic Landscape

Following any commodity or product from beginning to end offers a greater level of insight with regard to the nature of that product as well as its ultimate total impact on the broader environment. Initially there was little concern regarding the environmental impact of producing and distributing bottled water and many believed it was fundamentally better for health to drink it, as opposed to other alternatives. This may be the case but packaging, manufacture, filtering and treatment all have some impact on the environment and there is also some evidence that water which has not been filtered of essential nutrients is likely much better for health than that which has been. There has also recently been a significant public outcry regarding the serious environmental degradation that is caused by the non-biodegradability of the packaging used to provide the product. Nestle' Water of North America recently commissioned a study that demonstratively shows that bottled water has a far better environmental impact than other beverage choices, but due in large part to packaging and logistics of distribution that impact is still greater than tap water. A brief glance at one of the most strenuous comparisons made to date on this issue shows that tap water, as a choice of beverage has significantly less impact, with regard to water use, use of non-renewable energy and climate change or carbon footprint than bottled water or even filtered tap water (owing to the production and distribution of filter systems). Bottled water on the other hand scored significantly lower than coffee or tea, both highly utilized beverages in the U.S.

Figure a-1: Comparison of climate change impact, non-renewable energy use, and water use for a variety of beverage options (* indicates results from the present study; ** indicates results from public pre-existing sources, with the exception of iced tea, which is not publicly available). (Quantis 2010, p. 4)

This information is a fundamentally important demonstration of the need for consumer awareness, especially with regard to seriously high impact products, but it is also important to develop the realization as consumers that there are many issues yet to be addressed and yet to be resolved, especially regarding the issue of local vs. national distribution practices. The study also notes some important issues and distinctions with regard to environmental impact of beverages:

For example, consumption of water of all types (both bottled and tap) provides 41% of beverage consumption, while producing only 12% of the associated impact on climate change. In comparison, the combination of milk, coffee, beer, wine and juice provide just 28% of the volume of beverages consumed but are associated with 58% of the climate change impact. These observations show that it is essential to consider the full scope of beverage consumption when considering impacts of any given product, as increases in consumption of one product are likely to result in the decrease of another product and vice-versa. In considering switching beverages, there are both health-related and environmental considerations that should be considered, and the present project examines only the environmental aspects. (Quantis 2010, p.4)

Another issue that is of significant importance with regard to sustainability is the fact that millions of people throughout the developing nations go without readily available clean drinking water and nothing in the current study or the literature I have found associated with it address the disproportion of water consumption or availability in developing nations. This issue is likely to be a timely issue on a larger scale with regard to corporate social responsibility and globalization in the very near future, as trucking even more packaged water to these regions is unsustainable and municipal water projects and non- governmental organizations (NGOs) have been attempting to help resolve this issue for decades, but the culpability of individuals and industries must someday be addressed in addition to the environmental degradation caused by bottling and packaging so many ready to consume products.

The Quantis peer reviewed study on the impact of water, commissioned by Nestle also addresses the fact that only a portion (30%) of those who normally drink bottled water will choose tap water if no bottled water is available. Most will choose another bottled beverage. Given the extreme commitment that most municipalities, in the developed world have to provide clean and abundant drinking water through the taps of our homes and businesses it seems extravagant to continue to believe that the best thing for us is bottled water, which has simply been filtered from another municipal water source. (2010, p. 4)

Also it is important to note that all the major bottled water brands that are popular in the U.S. are bottled and distributed by multi-billion dollar food and beverage companies, who already have the lion's share of business in this area. Local water brands are few and far between and do not market extensively or frequently share shelf space with the big guns. Here are a number of reasons for this many of which are well outlined by Brown in his relatively comprehensive article about his interest in a local water bottling brand in the Washington state area. The reasons he gives have been briefly touched upon in the above work but are fundamentally explained here:

1) Access to consumers -- During due diligence I discovered that & #8230;a local bottled water could only hope to get on the shelves in maybe 20% of the local outlets that sell bottled water. The reason for this is two-fold. In many convenience stores -- where Coke and Pepsi are very strong -- the Big Two lock out all water competition with exclusive contracts. Even the local Nooksack Valley High School here has an exclusive contract with Coke for all its beverages…Meanwhile, in supermarkets -- the other big retail arena for bottled water -- "slotting fees" imposed by the stores frequently prevent superior local products from ever getting on the shelves. According to distributors, it costs tens of thousands of dollars in slotting fees to get an unknown, untried product into a regional supermarket chain