I’ve been intrigued with the concept of shared value ever since Michael Porter and Mark Kramer first wrote about it in 2006. I think the idea of creating economic value by creating societal value has the potential to be a game changer for many companies and help make progress on important societal issues. Yet, I have to admit that until last week, I didn’t connect it with selling bottled water.
I followed the conversations we had here and on Twitter with Heidi Paul, Nestlé EVP for Corporate Affairs, following the release of Nestlé Waters North America’s (NWNA) latest Creating Shared Value Report, and one question kept bugging me – can selling bottled water really be considered creating shared value (CSV)?
To find an answer I first went to Porter’s and Kramer’s 2010 HBR article to find their definition of creating shared value:
“The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.”
So basically, CSV is about companies creating economic value by tackling a societal issue.
Now, let’s see what societal issue Nestlé is tackling by selling bottled water in North America. NWNA explained it in its Creating Shared Value report:
“Calories from sugared drinks have more than doubled in the past 40 years. More than 65 percent of adults and 33 percent of children in the U.S., and more than 30 percent of Canadians are overweight or obese. Much of the increase in calories consumed during the last 30 years comes from beverages.”
In other words, the societal problem is obesity and Nestlé is tackling the root of the problem, drinking too much soda, by offering the alternative of healthy hydration. “We play a key role in increasing Americans’ consumption of water, which is the healthiest beverage choice. As the data indicates, there is a crucial role that bottled water plays in consumer choice. Everywhere there is a high-calorie sugary, packaged drink available; we want to make sure there is water as well,” Heidi Paul explained.
So, if I got it right, Nestlé’s rationale is that people drink too many sugared drinks which result in increased obesity rates. Since people are used to drinking from packages (Paul says that it’s 70 percent of what Americans drink) it’s easier to convert them to bottled water and hence lower their caloric intake from beverages and improve their health and wellness.
According to Paul, 51 percent of people who stop drinking sugared soft drinks are switching to bottled water. Other data also supports this notion that people have been switching in growing numbers from soda drinks to bottled water due to increasing concerns over the impacts of sugary drinks as well as the emergence of single-serve water bottles.
This trend helped water pass soda in 2008 as the number one drink in the U.S. – right now, according to industry tracker Beverage Digest, Americans drink an average of 44 gallons of soda and 58 gallons of water a year. Of the 58 gallons of water, bottled water equals 21 gallons and the rest includes tap, sparkling, flavored and enhanced waters.
So back to our question, taking all of this data into consideration, can we say bottled water is an example of shared value creation? Well, the answer is complex. Technically, we could say “yes.” Selling more water creates economic value for Nestlé while improving the health of the American consumers buying them because many buy them as a substitute to soda and hence (hopefully) improve their health and wellness.
So where’s the complexity? Well first, Nestlé’s offering is not that different than many other products that provide a similar premise, such as cola with natural no-calorie sweetener, low sodium soup, or McDonald’s McWrap. All of these new products are supposed to provide American customers with greater value, enhancing their health and wellness, and yet none of them is presented as creating shared value.
Second, looking at the “how to create shared value” part of Porter’s and Kramer’s article, you can see that the authors identified three distinct ways to do it, “By reconceiving products and markets, redefining productivity in the value chain and building supportive industry clusters at the company’s locations.”
Would Porter and Kramer think that bottled water should be seen as an example of “reconceiving products and markets” (the other two ways seem less relevant in this case)? I’m not sure. They talk about food companies concentrating on better nutrition (which Nestlé does very well in developing markets) and use as examples GE’s Ecomagination products or Wells Fargo’s line of products to help customers to better manage their credit and budget. Some might claim that Nestlé’s new hydration product, Resource water, aimed at stylish, trendy, higher income women might be a good fit, but I doubt if Porter and Kramer would agree, especially after the treatment this product got from Steven Colbert.
Last, but not least, there’s the question of sustainability. In a presentation he gave last year on shared value, Porter said that “if there’s an important societal problem and we can use a business model and we can advance that societal problem and we can do that sustainably, then that’s what we should do.”
The question is if the part of “do that sustainably” can be applied to bottled water. No doubt they’re more sustainable than sugary drinks, but shouldn’t sustainable future be about clean tap water available to all rather than bottled water, especially in developed countries like the U.S.? I leave it to you to decide.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.