Soda Scandal for Coke, Pepsi

There's been a big stink in India recently.

The Delhi-based Center for Science and Environment reported earlier this month that samples of Coca-Cola (NYSE: KO  ) and Pepsi (NYSE: PEP  ) products had tested positive for high levels of pesticides. The revelation has brought protests against the companies, bottle-smashing demonstrations (yep, they actually still have glass bottles there), and investigations by India's parliament. The row has also caused consumption rates for these companies' products to plunge by more than 40% in India, which boasts the world's second-largest population.

However, an Indian government panel yesterday reported that its own tests of 12 samples showed that all met Indian standards, although nine of them would fail European Union levels for pesticides. Parliament has ordered a different set of tests, which will be completed in November.

In the meantime, all of the taps for Coke and Pepsi products have been turned off. This includes Thums Up, an Indian soda that dominated the market prior to the arrival of Coke and Pepsi and which is now a Coca-Cola product.

The authors of the original report stress that their targets were not Coke and Pepsi, but rather the Indian government. I guess they just have bad aim.

Indian regulations for the water used in soft drinks are not at all descriptive, and state just that "potable water" be used. The most economic route is to use tap water, running it through a filtration system. Both Coke and Pepsi have strenuously challenged the center's findings, but Pepsi has made the flanking move of announcing that all its fountain drinks now be made with mineral, not tap, water.

While the cost to Coke and Pepsi have been severe for the Indian market, it must be stressed that this is not a large component of each company's sales, despite the country's billion-plus population. Still, both companies have an incredible amount of equity built up in their brands; in no way should they allow the Indian market to slip away due to scandal, nor risk the taint to cross into other countries.

This may be a tempest in a teapot. Or another one of those fear-mongering publicity stunts. But it's something that both companies need to fight both vigorously and diplomatically.


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