Big Business is part of the Big Society too.

I was struck last week by Coca Cola’s announcement that they are to close Malvern Water, a small, 23 year old company extracting water from the spa favoured by Charles Darwin in his struggle to find a cure for his life-long sickness (many of his visits were recalled in last year’s brilliant film Creation).  What struck me most about this announcement was that there was no mention in any of the many media reports about the profitability of Malvern.  I have since searched high and low for Coca Cola’s profits broken down by brands, without success (Coca Cola, on being asked to comment, sent me their press release which makes no mention of brand profitability).

What is interesting about this announcement is the supposed rationale of the sale.  Coca Cola made much in its press release about the difficulty it had extracting more than relatively small quantities of water and the effect that had on Malvern’s competitiveness.  But it made no mention of its profitability.  Now, maybe I will soon learn that the plant was unprofitable and/or that it was predicted to go into loss.  Yet, one might expect that such business records and predictions would be at the forefront of Coca Cola’s justification for the closure – especially as it had such heavy criticism from Unite and the local community.  That they did not is telling; and suggests that the reason for the sale lies elsewhere.

For one did not need to look far in the press reports to see that, rather than attempting to sell the business as a going concern, Coca Cola intend to develop the plant and sell it as ‘luxury housing’.  For all their glossy literature on corporate responsibility, Coca Cola have been found wanting.  If my suspicion on Malvern’s profitability is right 17 sustainable jobs have been exchanged for housing for (perhaps) a similar number of people.  Their reaction to this (in their press release reproduced below) is that residents of Malvern wouldn’t want the plant to continue in industrial use with all the smoke and congestion that would cause.  What are they expecting – a steel processing plant?  It is this sort of attitude that condemns towns like Malvern to become picturesque tourist towns filled with wealthy commuters.

Of course it is difficult to criticise individual corporate decisions from outside the business in question.  One doesn’t have access to balance sheets, business predictions, attempts that might have been made to sell the subsidiary and so on.  But lack of access to these records should not excuse big business – as much as big government – from scrutiny over its decisions and their justification.  In this case, it is reasonable to ask what steps Coca Cola has made to sell the business as a going concern – one with a Royal Warrant, no less; and whether it has turned its mind to alternative industrial uses for the plant.

David Cameron’s speech yesterday revived the organic conservatism many have long identified in his championship of the Big Society:  “Successful, high-growth economies are like ecosystems –they are organic, evolve through trial and error and depend on millions, billions, of individual preferences, choices and relationships. Governments can expect to intelligently design all this as much they can expect to intelligently design the Great Barrier Reef.” (Darwin would approve.)  He is right, of course.  But the organic society removes control from government only because it believes in the corporate responsibility of which Coca Cola boasts.  Decisions like this condemn our market towns to become museums of the thriving, small business led communities of their past.

NB:

Coca Cola, on being asked to comment, sent me a copy of their press release and pointed to Malvern’s market share in the ‘notes to editors’.  Notwithstanding a specific request for the recent profit levels of Malvern, they did not provide that information.  I reproduce the press release in full as a ‘comment’ below.

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13 Comments

  1. francishoar said,

    26 October, 2010 at 2:28 pm

    STATEMENT FROM COCA-COLA REGARDING CLOSURE OF ITS COLWALL PLANT

    Coca-Cola today announced the end of production of Malvern Water at its plant at Colwall in Worcestershire. The company employs 17 full time staff at the site and has been in the local community for the past 23 years.

    Announcing the proposal, a Coca-Cola spokesperson said: “This has been a very tough decision for us to take, particularly given the hard work and commitment shown by our staff at Malvern.

    “We cannot produce enough Malvern Water on the scale it needs to compete in today’s bottled water sector. Modern bottled water plants are around 10 times the size of Colwall and can often produce more water in a day than we do in a month. That’s why Malvern Water costs more to produce and why a big two litre bottle of mineral water in the supermarket sells for as little as 68 pence. The size of our site – plus the amount of water we can actually extract – means Malvern is expensive to produce and cannot compete on price.”

    Malvern has only ever had 1% of total bottled water sales in the UK in the past 10 years, despite the company’s best efforts to change that.

    “Over the past five years, we have placed Malvern in our vending machines in UK airports, pursued new contracts and invested in the Colwall plant. But we simply can’t change the size of the plant, or extract the volume of water needed, for Malvern to compete in today’s highly competitive bottled water sector” said a spokesman.

    Coca-Cola is committed to doing all it can to offer its 17 employees alternative roles at its other sites and help with re-training opportunities.

    The site is due to close at the beginning of November and Coca-Cola plans to sell the site for residential use, rather than industrial.

    “We have been part of the community in Colwall for 23 years and know that local residents do not want to see heavy industry move onto the site, with all the noise and congestion issues that might bring. To respect those concerns, we will be selling the site for residential development only” said a spokesman.

    ENDS

    For further information please contact the Coca-Cola press office on 020 8237 3782 or gbpressoffice@eur.ko.com.

    Notes to Editors:
    1. Malvern Water has 0.4% of total bottled water sales in the UK. Malvern has only ever had at best a 1% share of the bottled water sector in the past 10 years (Canadean data 2009).

    2. The ‘on premise’ bottled water segment (restaurants, hotels, bars) has declined by 25% in the past 2 years (AC Nielsen Total Brewer MAT volume Oct 2010). Approximately 80% of Malvern’s volume is sold in the on premise bottled water segment.

    3. Malvern volume has declined by 50% in the last 4 years (CCE Margin Minder and CCE forecasting).

    4. The average price of a 2 litre bottle of natural mineral or spring water in the UK is 68p and a 500ml bottle is 43 pence. Malvern’s recommended retail price for a 500ml bottle is 68 pence.

    5. Coca-Cola employs over 4,500 employees in the UK and has seven manufacturing facilities.

  2. 26 October, 2010 at 2:51 pm

    I’m sad for the people losing their jobs. It’s a bad time to be asking people to pay more for a litre of water than they do for a litre of petrol.

    • francishoar said,

      26 October, 2010 at 3:09 pm

      Fair point (although it’s largely sold to restaurants). But it isn’t just a question of whether the plant can survive as a water plant but why industrial use can’t be considered. This is something I hope the local authority will consider when it comes to consider change of use planning permission. Too many small towns have lost their industry and the comment made about congestion, etc, is all too typical of the cosy view of the pituresque which ignores the history of towns like Malvern. They were once filled with small enterprises like this – blacksmiths, butchers but also tanaries and wheelwrights. That is obviously harking back to a long gone past but there are all sorts of small, often high tech and internet based businesses that might be interested in this sort of plant.

  3. Michael Ranson said,

    26 October, 2010 at 3:06 pm

    I see this is a political blog and therefore limit my comments to those drawn on (perhaps hackneyed) left/right lines.

    Corporations exist primarily for the benefit of their shareholders. Barring a freakish level of public participation in the stock market, this means that the interests of corporations will never been entirely aligned with the interests of society at large.

    As someone who leans to the left in politics, this seems to me to be the flaw with much of the Big Society dogma emerging from the coalition. If the actors in the Big Society are companies rather than governments I fail to see on what grounds non-shareholders can complain about corporate actions. Coca Cola is no doubt selling the site because it gives them an annual profit of £x which, when run through the clever spreadsheets of accountants, gives the water business a capital value of £y. An estate agent in a shiny suit has probably told them that the land, with planning permission for residential development, is worth 150% of £y. The corporation is returning more value to its shareholders by closing the business and selling the land. The corporation is doing what a corporation ought to do.

    I am not so far left as to deny that capitalism is a good economic model and that corporations are excellent vehicles for capitalism. I’m therefore not going to complain about the actions of Coca Cola here on anything other than sentimental grounds.

    Do I want hospitals, schools and other non-commercial services run by vehicles which have motivations similar to those of corporations? No. I want these services to be run for the good of the whole spectrum of society, not just those who are able to be the quasi-shareholders in the best school and hospital-providing vehicles.

    This, I reckon, leads me to conclude that I do not want the current government’s conception of a Big Society. From what you say about Coca Cola and Malvern, I presume you agree and look forward to welcoming you to the Labour Party this evening.

  4. francishoar said,

    26 October, 2010 at 3:16 pm

    No, it doesn’t.

    The point I’m making is that giving corporations more responsibility means they must use it well. There are, as I pointed out in my last comment, means by which government and society can quite legitimately force corporations to consider the efficacy of their decisions – including, most pertinantely here, the planning process but also through public opinion.

    As for what you said about schools, we already have a thriving and very successful private school network. It is successful not because it is regulated (although it is) but because people are willing to pay to send their children to individual schools. If a thriving market in state funded schools develops – as it has been, in fact, since the 1980 Education Act – that is all to the good. Big Government is no better at regulating schools on a micro level ‘for the good of society’ than big business is about making decisions like this one.

    • Michael Ranson said,

      26 October, 2010 at 3:40 pm

      You say ‘giving corporations more responsibility means they must use it well’. Corporations are there, fundamentally, to deliver shareholder value. That is their responsibility. If my assumption about ‘value of the business v the value of the land for development’ is true, then Coca Cola has discharged its responsibility admirably here.

      Money trumps sentiment in business. ‘Responsibility’ can only be owed to so many people and that class of people is always going to be narrow for companies with shareholders to appease. To whom does the Big Society owe its ‘responsibility’?

      When talking about private schools, you make the argument for me. “It is successful… because people are willing to pay to send their children to individual schools.”

      Quite.

      Those who can afford to pay create a micro-climate of education which is first rate. Let’s not con ourselves into thinking that with private schools ‘those who can afford to pay’ are the closest the schools have to shareholders.

      What about those who cannot afford to be shareholders? Those who will always be mere consumers of whatever free educational or health product is made available? In my view, whether by accident or design, there is no adequate mechanism within the Big Society to protect these people.

      • Michael Ranson said,

        26 October, 2010 at 3:56 pm

        Hmm, sorry

        “Let’s not con ourselves into thinking that with private schools ‘those who can afford to pay’ are the closest the schools have to shareholders.”

        Doesn’t make any sense.

        I meant to say

        “Let’s not con ourselves into thinking that with private schools ‘those who can afford to pay’ are anything other than the closest the schools have to shareholders.”

  5. Jon Rollason said,

    26 October, 2010 at 3:45 pm

    So, where does this leave you?
    Dave stood up yesterday and told the CBI to create three times as many jobs in the private sector as he is abolishing in the public. That won’t happen, because he cannot and will not take the powers required to make it happen (even assuming the existence of such powers left open the possibility that a “private” sector remained). Coca Cola sell a (for the sake or argument profitable if doubtless environmentally insane) water-bottling plant for housing rather than to a local high-tech wheel-wright or tanner. You don’t like it, but other than remarking that Coca Cola have been “found wanting” against some spurious yardstick of participation in a vision of society that the company is constitutionally unable to give a flying fuck about, what can be done? Absolutely nothing.
    Corporations prefer your bleating to regulation, which your party has promised to relieve them of. And they prefer a dewy-eyed Philip Blond conception of pre-Tolpuddle matyrs working class self-help to having to deal with organised labour, which your party will doubtless use the London Fire Brigades strike as a pretext to have another crack at to coincide with the state funeral.
    You leave yourselves utterly powerless to do anything about the things that big business does that you don’t like, while being wholly dependent, ideologically and practically, on big business to achieve your goals.
    Coca Cola thinks the “big society” is a vague, irritating whiny noise, barely audible in the board-room, happily coupled with a reduction in environmental regulation and a clampdown on trade unions. Which it murders in countries where it can get away with doing so anyway….

  6. francishoar said,

    26 October, 2010 at 3:55 pm

    That is exactly why it is a good idea to create the market that is so successful in the private sector in the state sector. Far from free schools, academies or other independent, state funded schools bringing down quality, they improve it not merely by providing more choice but by providing the competition that always drives up standards.

    You also treat the notion of the organic society in the wrong way (perhaps ‘big society’ is a bad phrase prone to mis-representation). It isn’t something that has mechanisms other than the communities within it. In the instance I cited, that community *does* have means by which it can create greater corporate responsibility through the planning process but also by raising interest in potential investors in the plant and/or in alternative micro-industry uses for it. This happens and one thing the state can do is to support such businesses – through the tax system, marketing and in other ways.

    So, yes, of course business will always look first to its balance sheets. But there are means of enforcing a more enlightened view of corporate responsibility that don’t just involve the state. The fact that Coca Cola devotes so much attention to this (in the document to which I linked) demonstrates the power of public opinion, too.

  7. Jon Rollason said,

    26 October, 2010 at 4:05 pm

    So let’s get this straight. If the inhabitants of Malvern don’t like Coca Cola’s plans to close down the water plant and sell it for housing, they can a) fight a massive multinational in a planning enquiry; and b) create an alternative micro-industrial business and outbid the housing developer to buy the plant, hopeful that some sort of tax perk will make it worthwhile for them. Or they could band together to launch a hostile takeover of Coca Cola of course.

    And if they don’t do those things, or they simply can’t because they don’t have enough money, enough tenacity or enough time to take on a particularly successful and aggressive corporation with massive resources and formidable lobbying power, tough titty, that’s the Big Society in action.

    • francishoar said,

      26 October, 2010 at 4:17 pm

      Don’t have time for a detailed response but you forget that it is the local authority that determines the change of use planning application. Coca Cola may be able to afford decent lawyers but that doesn’t prevent the local authority from making up its own mind, subject as it is to democratic accountability.
      Incidentely, I don’t see any suggestion of how this issue would have been treated differently under a different government – it wouldn’t have been. What sort of regulation would stop a business selling a plant like this – certainly none contemplated by any major party. So it comes back to being a matter of corporate responsibility.

  8. Jon Rollason said,

    26 October, 2010 at 8:10 pm

    So, the solution to the problem which you’ve identified is, happily, the dominant theme of the Prime Minister’s rhetoric: the Big Society. Or, to put it another way, pleading with companies not to do what they’re supposed to do. Coca Cola is never going to prioritise those jobs and that land use over money unless you make it do so. You’re not going to. You’re going to plead, and they’re going to ignore you. The people who have lost their jobs will be ordered to get on their bikes, and if they don’t find another job they will be stigmatised as shirkers and will have support for them hacked away regardless of whether there is another job for them to go to.

    A central difficulty which those of us trying to give your government a fair hearing is that the idea of the “Big Society” is almost meaningless at best. The addition to the developing literature on the subject that you are making today is not really helping. In your explanation, Coca Cola is being naughty, but simply gets a mild verbal ticking off. And a “community” is found wanting because it can’t stand up to a massive corporation. Malvern society isn’t big enough for you, and Coca Cola isn’t listening. Does the Big Society vision have anything to offer here? Is there something other than exhortation that I’m missing?

    • francishoar said,

      28 October, 2010 at 1:15 am

      Wait a minute – this announcement has only just been made. You are quick to jump to conclusions but part of my point is that it is for society – not merely the state – itself to find means by which local business can be encouraged and nurtured. Part of that is indeed by media pressure but part too by communities, other businesses and local government (whose role I don’t believe you’ve addressed adequately).
      As it happens, I wasn’t the only one writing about this yesterday. This feature in the Telegraph (http://www.telegraph.co.uk/news/features/8088374/Malverns-spring-of-discontent.html) doesn’t merely report on discontent in the town and further afield, it demonstrates that the relatively limited media coverage this issue has already provoked has led to some real progress. That isn’t so much the fact that many ideas are being touted in the town (such as approaching Duchy Originals), as that the media spotlight has led to some interesting revelations about the business practice of Coca Cola that led to this situation. For example, that the product had not been properly marketed, that it was unavailable in large areas notwithstanding local demand. The reason that is important is that it suggests that other businesses might well be pursaded to invest.

      So what does this say about the ‘big society’? Firstly, the term is no more than a tag for an idea of society that works not through central control but through devolving power to individuals, communities, businesses and local towns. This sort of society will not need the state to ‘save’ businesses like this through regulation (you haven’t answered my question as to what the last – or any – government would realistically do about this) because it will nurture the sort of enterprises that would happily take on a small, niche product with a global brand if given the opportunity. That nurturing is done in part through local government – planning decisions about change of use being particularly important here – and national government – grants for entrepreneurs, tax breaks, etc – but all with a view to allowing business to grow organically. That is to say, where business identifies that it is likely to succeed. Businessmen are good at that – it is their money on the line.

      Remember, I didn’t write this article bemoaning the close of a business at the end of its profitable life. I wrote it angry that what appeared to be a profitable business (one that was at least potentially able to replicate its past successes given proper attention) was being ‘asset stripped’ (in the words of one of the residents quoted in the above article). Interestingly, Iain Hollingshead (in the Telegraph) makes the point that part of the decline of Malvern can be attributed to the fact that its marketing and management appears to have been merged with that of other ‘brands’, rather than being devoted to Malvern itself. Thus, it was inevitable that the brand would suffer as Coca Cola had little concern in ensuring that the brand was competitive in a marketplace it has no concern for, owning the dominent products. Another argument for small businesses making small profits being best managed independently.

      So, Jon, this may be an example of a business that can survive through the intervention of others given the right conditions, media pressure, planning decisions and so on. Or perhaps it will not. However, if it succeeds it won’t be because the man in Whitehall has decided that it must (and how much chance that that would happen in the regulated world you half argue for without answering my question how that regulation would work). And that is a far better recipe for a better community based enterprise.


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