{"id":21634,"date":"2017-11-12T20:31:33","date_gmt":"2017-11-13T01:31:33","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/lacroix-vey-climate-change-and-the-business-of-cool-carbonated-water\/"},"modified":"2017-11-12T20:31:33","modified_gmt":"2017-11-13T01:31:33","slug":"lacroix-vey-climate-change-and-the-business-of-cool-carbonated-water","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/lacroix-vey-climate-change-and-the-business-of-cool-carbonated-water\/","title":{"rendered":"LaCroix-vey! Climate change and the business of (cool) carbonated water"},"content":{"rendered":"

PROBLEM SETUP<\/em><\/strong><\/p>\n

After decades on the market, LaCroix \u2013 a fruit-flavored seltzer that has become a cultural phenomenon among Millenials (See Exhibit 1) \u2013 experienced a sales boom, putting its parent company, National Beverages (NB), on track to make $1B in revenues this year [i] [ii] (See Exhibit 2). The carbonated water category has more than doubled since 2013 [ii], attracting goliaths like Coca Cola looking to acquire and develop brands of their own [i] [iii].<\/span><\/p>\n

NB operates twelve U.S. manufacturing facilities and touts its high standards for product development, labeling and manufacturing [iv].\u00a0As a beverage manufacturer, it must consider the risks that climate change poses to its supply chain via increasing water shortages, as well as its role in perpetuating greenhouse gas (GHG) emissions through manufacturing and packaging.<\/p>\n

Shrinking glaciers, reduced snowpack, and erratic rainfall have heightened expectations of global water shortages, with experts claiming the proportion of land surface in extreme drought could increase to 30% by 2090 [v].\u00a0Because water is a critical production input for LaCroix, NB has a vested interest in slowing or reversing the impact of climate change on earth\u2019s water supply; otherwise, it could face rising prices or all-out shortages as supply dwindles and global competition increases.<\/p>\n

In addition, NB indicates the price of its raw materials (like aluminum cans) fluctuates based on commodity market conditions, suggesting it lacks control over these inputs [v]. Because much of the world\u2019s energy-intensive industry is located in developing nations (where 50% of aluminum was produced in 2006), this lack of control could amplify downstream climate change risks [vi].<\/p>\n

Lastly, given heightened visibility and competition, NB must consider LaCroix in direct comparison to players like Coca Cola, who articulate visible positions on environmental sustainability in marketing efforts [vii].<\/p>\n

WHAT TO DO<\/em><\/strong><\/p>\n

Though it avoids explicit mention, NB has clearly made several choices to mitigate impacts of climate change: by excluding sugar from LaCroix, NB eliminated the greatest contributor to its process water footprint (See Exhibit 3) [viii]; it utilizes reverse osmosis \u2013 an efficient desalination process (though not quite best-in-class) [ix]; and, by primarily using recyclable cans, it eliminated 95% of theoretical aluminum process emissions [x] (though, because NB does not control its aluminum price, one could argue it does not fully manage this process and thus cannot guarantee fully environmentally- and financially-sustainable sourcing).<\/p>\n

Water footprint accounting can help NB assess operational risks and opportunities for improved mitigation. Most of the water footprint of a given 0.5L water beverage stems from the supply chain (rather than from direct water product input) [ix],\u00a0<\/span>which underscores the need for NB to thoroughly audit its process for inputs like flavoring in addition to water sourcing and aluminum procurement. A better understanding of its footprint drivers, combined with 100% recyclable and controllable aluminum processing and best-in-class desalination, could significantly improve process sustainability.<\/p>\n

NB must also consider its communication strategy. Because it claims to have a low carbon footprint without any supportive detail, there exists latent opportunity to capitalize on transparency about sustainable practices. Such messaging would support its brand of \u201ccaring for America,\u201d potentially command a higher price point among its Millenial consumer base [vi], and add competitive pressure to others to follow suit, resulting in a win-win for the industry and the planet.<\/p>\n

Though NB has begun to mitigate its impact on climate change, opportunities remain to optimize its sustainability practices and to communicate about them. What barriers exist to conducting an internal audit of its water footprint? Why might NB not want to talk about what they do in the realm of environmental sustainability? Are there steps that NB should take to adapt rather than just mitigate change?<\/p>\n

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(797 words)<\/p>\n

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EXHIBIT 1<\/strong><\/span>: Select social media<\/p>\n

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Source: Instagram, lacroixwater<\/strong><\/a><\/p>\n

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Benedict Cumberbatch, Robert Downey Jr., Mark Ruffalo and Benedict Wong on the set of \u201cAvengers: Infinity War\u201d June 2017. Source: toofab.com<\/strong><\/p>\n

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EXHIBIT 2<\/strong><\/span>: National Beverage Corp. (NASDAQ: FIZZ) 10 year stock performance<\/p>\n

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Source: Google Finance<\/a>. Accessed November 6, 2017.<\/p>\n

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EXHIBIT 3<\/strong><\/span>: Composition of the water footprint of a business.<\/p>\n

(A) Operational water footprint =\u00a0<\/b>Directly associated with production of the product<\/p>\n