I came across an interesting piece in the Wall Street Journal on Tuesday.The article noted that Coca-Cola and several other large companies have begun serious work to collect and recycle the massive amount of plastic now roaming our oceans.Since I’m big fan of Coca-Cola—the drink and the company—I looked into it and decided to turn my thoughts into this post.co*ke had already committed to a “world without waste” by 2030, which means that the company will collect and recycle a bottle for each one it sells. Something like plastic neutral.
That’s a hefty commitment, as just shy of 2/3 of co*ke products are sold in plastic PET bottles.I estimate that co*ke spends somewhere north of $800 million each year on plastic packaging, and so the potential for cost reduction if they can make the recycling thing work is huge. Ocean recycling also might help offset some negative press the company receives from public health critics.Last month, co*ke showed it is serious about ocean recycling as it went public with its first bottle containing plastic from the sea, containing 25% recycled material from ocean plastic. Nice to see a company out in front of an issue.
That’s a great feel-good story, so where’s the strategic risk?Remember, a strategic risk is one that can torpedo or turbocharge a company’s core competitive advantage.The market for recycled plastic is quite volatile, with the constant threat of price pressure from new, or virgin, plastic.Every time oil and natural gas prices go down, or when they stay low, virgin plastic is simply cheaper to use.The Wall Street Journal noted that fishing plastic out of the ocean is still in its infancy, and could prove costly.
Further, creating food grade RPET (recycled Polyethylene Terephthalate) is technically difficult, and getting plastic out of the ocean presents its own set of challenges.First collecting small plastic items over vast numbers of square miles presents a daunting task.Second, because of its exposure to salty sea water, the quality of ocean plastic is degraded, sometimes the chemical structure of the plastic itself has changed, a real obstacle for food-grade recycled plastic.Today, most recycling focuses on “ocean-bound” plastic, or pulling plastic from rivers, streams, and beaches. Easier to collect and higher grade. So, using recycled plastic could be an economic winner or loser, depending on market prices and technology.
Why should co*ke navigate the dicey waters of ocean recycling?The downside risks of cost and quality seems to argue for a safer bet on other forms or recycling.There are, as I’ll describe below, downside risks to NOT getting into this market, and entry into ocean recycling may enhance co*ke’s competitive position.
Downside risks:Costs and regulations that torpedo co*ke’s advantage
The clearest strategic risk for co*ke is that it’s commitment to ocean recycling increases, rather than decreases, its overall cost of plastic.Ocean recycled plastic has too many technical challenges around quality that mean you’ll probably never see a 100% ocean recycled bottle; co*ke’s current effort yielded a 25% recycled bottle. That may be a practical limit, and given processing costs that 25% may be 50% of the cost of a bottle.Not good news.
Even if it pays more, however, it may be cheaper than not participating.First, think about the costs to the brand.co*ke spends $3.8 billion a year on advertising to create a positive image, but every labeled bottle lying on the beach or floating in the tide damages that image in a very personal way.co*ke gets enough negative press around the sugar in its products, no need to allow you packaging to further send negative signals.Second, the problem of plastic pollution is getting worse. By 2025 there will be a ton of plastic for every three tons of fish, but by 2048—at current rates—there will be more tons of plastic than tons of fish.Activists are already on the problem, and government regulators won’t be far behind.
co*ke’s decision to play a leadership role allows it to avoid the followers curse.Leaders have two major advantages. First, they come down both the learning and experience curves faster than followers.They have a longer runway to adapt their products and organization to new realities. Second, industry leaders usually have a voice at the public policy table. They’ve got the commitment and credibility to influence the debates in ways that benefit themselves and the markets they compete in.
Upside opportunities: Turbocharging the brand.
Today, ocean recycled plastic probably can’t compete on cost with virgin plastic; however, as ocean recycling grows in scale and comes down its own experience curve, and in the presence of activist pressure and governmental regulations, ocean recycled plastic may become a sustainably cheaper input.In that scenario, co*ke’s bottom line looks better.,
Ocean recycling fits with another BHAG (Big, Hairy, Audacious Goal) that co*ke has: to be an effective steward of fresh water resources.The company has a similar goal in water as in recycling: to offset what it uses through recycling, reuse, and other means of replenishing fresh water sources.An emphasis on ocean recycling gives co*ke a complete “brand” in this area:a company that uses billions of gallons of water in its product (a brand negative) becomes an effective steward of all the planet’s water resources (a brand positive).
co*ke’s leadership in ocean recycling, given its technical and cost challenges, will certainly produce important learnings about plastic, but my guess is that the company will create learning spillovers that will influence other packaging options and decisions.co*ke packages in plastic, steel, glass, and paperboard.Each of these materials can be found alongside plastic in streambeds and along shorelines, and lessons in ocean recycling probably touch these products as well.
Big Red is in the game early, and that will ultimately help them minimize costs and maximize gains over the longer term.It’s nice to see a company often accused of being behind the times and out of touch engaging with strategic risk.Good luck to them.
I’d love to hear about emerging strategic risks at your organization, and how you are becoming strategic risk and opportunity leaders in your industries.
Paul C. Godfrey is the William and Roceil Low Professor of Business Strategy at the BYU Marriott School of Business.His newest book, written with Manny Lauria, John Bugalla, and Kristina Narvaez, Strategic Risk Management:New Tools for Competitive Advantage in an Uncertain Age (Berrett-Kohler, 2020),introduces new and innovative thinking about identifying and managing strategic risks and uncertainties. The four have founded a boutique consultancy, Strategic Risk Insights, that allows clients to tap into their almost century of collective experience with risk management to gain superior insights for winning in a VUCA world.
