The Guardian: Busted brands
Saturday March 20, 2004
Business schools will be arguing for years about this week of the busted brands. Seldom have two global brands fallen from grace so spectacularly. Shell has been forced to downgrade its reserves of crude oil for the second time in three months, a severe setback to its efforts to improve its corporate governance. Yesterday Coca-Cola not only had to downgrade but to withdraw all UK supplies of its new mineral water, Dasani, after levels of bromate were found in excess of UK legal standards. Bromate is a chemical that is linked with increased cancer risk if taken in large quantities, though Coca-Cola stressed yesterday that there was no health risk from drinking it and that the withdrawal was precautionary.
This is a double disaster for Coke. When Dasani was launched earlier this month its image was shattered by the revelation that the contents were merely processed tap water from the Thames (vintage 2004) which costs a mere 0.03p per 500ml compared with Dasani's 95p per 500ml. It now turns out that around 40% of mineral water is also processed tap water. Water inspectors have for years pointed out that UK tap water is at least as good as the mineral equivalent especially if cooled in the refrigerator first - and that was before the additives were discovered in Dasani. There is no way Coca-Cola can escape from this public relations disaster unless it can respond with something really bold. Maybe it should relaunch the product as what it really is: Thames On Tap, pride of London. At least then it will not fall foul of the trade descriptions act.
Things will not be easy for Shell either. The oil giant must now explain to the US Securities and Exchange Commission why a corporation with such massive resources came to underestimate its reserves by more than 20%. Since some executive bonuses were linked to the reserves and others affected directly or indirectly by the share price it may have to be pay-back time at Shell fairly soon. Shell's miscalculation is not on the Enron scale. It is a very serious error nevertheless and it proves that accounting excesses are not an American monopoly.