The Multinational Monitor

JUNE 1990 - VOLUME 11 - NUMBER 6


B E H I N D   T H E   L I N E S

The Pepsi Challenge

Pepsi-Cola recently entered the vast Indian market after years of what it termed "relentless" negotiations. The government of India has agreed to allow PepsiCo Inc. to market soft drinks in a joint-venture with a state-owned agricultural corporation and a private firm called Voltas Ltd. India, with its population of almost 900 million people, may prove to be a gold-mine for Pepsi, which is losing the global cola war to Coca-Cola.

In order to succeed, PepsiCo will have to wean Indians from their traditional preference for inexpensive tea. Current soft drink consumption is only three bottles a year per capita. Pepsi plans to tackle the situation head-on with what company spokesperson Ken Ross describes as a "very aggressive" marketing strategy. Pepsi is counting on India's burgeoning middle class to quadruple sales. Total investment by Pepsi and its partners is expected to be $1 billion over the next 10 years. The company predicts $2.5 billion in sales during the same period.

Partners in the deal are the state-owned Punjab Agra Industries and Voltas Ltd., which is a subsidiary of the Tata Group, India's Iargest consumer goods company. The company they will form with PepsiCo will be called Pepsi Foods Ltd. It will feature three flavors of soda and a line of potato- and grain-based snack food: Pepsi Foods will also will operate a fruit and vegetable processing plant and a food export operation to generate hard currency.

The company will send its own agricultural advisors to show Indian farmers how to grow export crops and increase yields. Pepsi says it hopes to create a "New Green Revolution," referring to the U.S.-sponsored program of the sixties and seventies that encouraged farmers to exchange their traditional, locally-consumed crops for non-traditional cash crops.

Pepsi's India offensive is part of a larger campaign to capture a bigger share of the Third World's market. Using pop stars like Michael Jackson and Madonna, the company has sponsored rock concerts and multimedia events from Guatemala City to Manila in hopes of winning the loyalty of children in developing countries. Roger Enrico, CEO of PepsiCo Worldwide Beverages, is confident that Pepsi can capture this potentially explosive market. He told the Wall Street Journal in December 1989 that "loyalties don't pass from generation to generation, like an inheritance. Tomorrow's kids nobody owns yet."

The Price of Vices

Companies ranging from Philip Morris to the Washington Post are launching a preemptive strike against new controls on advertising for cigarettes and alcohol proposed by health advocates and legislators. The biggest names in the tobacco, liquor and advertising industries claim that 16,100 media jobs will be lost and that the amount of information and entertainment available to the public will significantly decrease if tobacco and alcohol ads are banned from the print media.

Fearing new limitations on their ability to promote cigarettes and alcoholic beverages, the industries have released a report asserting that if tobacco ads are banned, 165 magazines might fold and 7,904 jobs would be lost in the newspaper industry. The report also predicts the loss of 39 television outlets and 4,550 television jobs if beer and wine ads are banned from the airwaves. Most devastated of all, according to the report, will be the television sports industry, which could lose 39 percent of its programming to cable if beer advertising is banned from regular broadcast television.

The study, which has been sent to members of Congress, the media and "decision makers" across the country, was produced by the Leadership Council on Advertising Issues. The Leadership Council's stated mission is to "... mobilize all appropriate resources necessary to affect any advertising issue of principle, at all levels of government." Chief among the Council's unifying beliefs is that "the freedom to advertise unfettered by government intervention is a vital element of the free enterprise system."

Sponsors of the report argue that advertising bans have a "discriminatory impact on lower-income consumers" because information, entertainment and particularly sports programming would "migrate" to cable television and pay-per-view stations. However, critics such as Secretary of Health and Human Services Louis Sullivan see that as a cynical response to charges that alcohol and tobacco companies are targeting minorities.

In congressional testimony, Pat Taylor of the Center for Science in the Public Interest called the report "intellectually dishonest and simply a scare tactic." She also cited a recent Wall Street Journal poll which found that half of those surveyed favored banning advertisements for alcohol and 60 percent favored equal time for health and safety messages.

Some members of the advertising industry also have problems with the tactics of The Leadership Council. Rinker Buck, editorial director of Adweek's Marketing Week, believes the report has exposed the Council to charges that "their only interest in avoiding an ad ban is protecting the quarterly earnings of a handful of media companies that don't really have the interests of the American public at heart." He points out that the projected 4,000 publishing jobs that might be lost because of an ad ban should be compared to the 390,000 people who die each year from smoking-related diseases.

But the co-chairman of the Leadership Council, Ken Roman, who is also executive vice president of the American Express Company, says that the main concern expressed in the report is that ad bans hurt consumers. "The anti-advertising school is really an anti-information school," says Roman. "Less advertising would mean less information upon which the American people can base their individual choices about ideas, products, services even the type of entertainment they wish to enjoy."

However, depending too heavily on tobacco and alcohol ad revenue dramatically constricts the amount and type of information available, according to a study of health coverage in women's magazines conducted by University of Oregon journalism professor Lauren Kessler. Kessler examined six major women's magazines Cosmopolitan, Good Housekeeping, Mademoiselle, McCall's, Ms. and Women's Day - and found that although there were 694 articles about health during a five year period, none of the magazines published a full-length feature, column, review or editorial on the potential health hazards of smoking. Also, none of the magazines deemed the rise of lung cancer as the number one cause of death for women worthy of coverage. Not only do these magazines receive substantial revenue from tobacco advertising (Cosmopolitan got $7.9 million in 1988, McCall's $7 million), but tobacco companies also own many other products which the publications depend on for ad revenue. Offending R.J. Reynolds with an article on lung cancer, for example, could entail losing the advertising of its subsidiaries Nabisco Brands and Del Monte Foods; and banning ads for Philip Morris cigarettes could mean losing the advertising revenue from its subsidiaries, General Foods Corporation, Oscar Mayer Foods and Miller Brewing Company.

INFACT Success

General Electric boycott organizers claim they have recently cost the company over $7 million in sales of medical equipment and a grand total of $60 million in general losses since initiating the boycott in 1986. IN FACT, a coalition of activist church, labor and citizen groups, is sponsoring the boycott to protest the company's pivotal role in the nuclear weapons industry.

Since the spring of 1990, INFACT has focused on the Medical Division of General Electric, part of GE's Technical Products and Services segment, which posted a $589 million profit last year. Boycott leaders not only object to GE's production of nuclear weapons, but also to the company's aggressive efforts to create new markets for the weapons. The company's marketing strategy has included traditional methods such as placing ads for weapons in magazines and newspapers plus more innovative approaches like releasing reports which project Soviet military advantages. INFACT organizers say that GE also employs a 150-person lobbying force to influence defense appropriations. Company representatives often work closely with the White House; for example, when he was president Ronald Reagan appointed a GE board member to a special arms policy advisory committee on Star Wars. General Electric is the largest Star Wars contractor.

The GE Medical Systems boycott has concentrated on stopping the sale of high-priced items such as CAT scanners and magnetic resonance imaging machines, which can cost over $1 million. Many of the religious orders affiliated with INFACT are also big sponsors of hospitals and clinics that use such machines, and they have been able to use their positions to influence purchasing decisions. The Dominican Sisters of Great Bend, Kansas, for example, purchased $726,000 of equipment from a GE competitor. Likewise,the Director of Radiology in a Fort Worth, Texas hospital stopped the purchase of a GE imaging unit worth $1.5 million. And members of Physicians for Social Responsibility, a group representing 30,000 doctors, recently endorsed the boycott and pledged to work to enforce it at their hospitals.

GE claims, however, that its recent Medical Systems sales have been very strong and that its market share has increased each year since the boycott began. Also increasing since that time has been its advertising budget. INFACT has documented a 485 percent increase in money spent by GE for image advertising since the beginning of the campaign.

No Smoking Arena

When the Minnesota Timberwolves' new sports arena opens in downtown Minneapolis this October, it will be the first major league sports franchise to prohibit smoking and to refuse tobacco advertising. According to Kent Wipf, assistant director of media relations for the basketball team, owners Harvey Ratner and Mary Wolfenson "thought it would be contrary to allow cigarette advertising when a large part of their business is a healthy America." Ratner and Wolfen sohn also own a chain of health clubs.

They made the decision despite the fact that losses from tobacco advertising will total an estimated $500,000 a year. Tim Leiweke, president of the Arena Marketing Company said, "The tobacco industry is traditionally one of the top two advertisers for sports teams in the arenas. There was a tremendous amount of pressure to advertise in the Minnesota arena, but our owners felt very strongly about this decision."

The ban was greeted with great enthusiasm by public health officials. "The decision of the Minnesota Timberwolves' management to prohibit smoking, tobacco sales and tobacco advertising in its facilities shows foresight, courage and leadership," said Dr. Ronald Davis, director of the Office on Smoking and Health for the U.S. Centers for Disease Control. "`I hope this action will serve as a model for other professional sports teams to emulate."

The facility will be used for purposes other than basketball and the owners hope the smoke-free environment will be an added attraction for potential clients. Adds Wipf, the call for such an environment is "almost a trend" and everyone is "starting to recognize it."

Jim Sugarman and Katherine Isaac


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