Worried about bad publicity in the wake of a tainted-cola scare in Belgium, Coca-Cola Ukraine Ltd. trucked a busload of journalists out to its brand-new bottling facility in the Kyiv suburb of Brovary. It was an effort to reassure the public that Ukraine has nothing to worry about.
While the day-long junket was enough to dispel fears of a repeat of the Belgian catastrophe happening in Ukraine, it did not address the larger question looming over the company: Just how much damage did last fall's financial crisis do to Coca-Cola Ukraine?
That is a question Coke has been going to great lengths to avoid.
Hit hard by the financial crisis, Coca-Cola Ukraine's parent, European-based Coca-Cola Beverages, took its latest beating after students in four Belgian schools became ill after drinking botched cola.
The company blamed an Antwerp bottling factory for allowing sulfur to mix with the carbon dioxide that carbonates Coke. A batch of Coca-Cola product was also tainted by creosote from wooden shipping pallets.
In an unrelated incident, the company's Warsaw operation withdrew a shipment of its new mineral water, BonAqua, after non-hazardous bacteria were detected in bottles (See related story, page 8b). According to company estimates, the incidents have cost the company $60 million in lost revenue.
Ukraine's tabloid press seized quickly on the issue. The daily newspaper Fakty sounded the alarm with a bold, front-page headline on June 5 that read, 'Has infected Coca-Cola appeared in Ukraine?'
Ever mindful of the company's image, Coca-Cola's management responded swiftly to dispel such speculation. In a rare move for a company known for keeping its affairs private, it staged the sizable July 1 press junket. The outing served not only to head off a scare over contaminated Coke, but also to show off the new bottling plant in Brovary, some 51 kilometers east of Kyiv.
The 24.5-hectare tract provides a bucolic backdrop for Coke's gleaming $100 million bottling facility. The plant's two reserve water tanks – painted to resemble giant Coke cans – tower over the horizon, and the site looks futuristic next to Brovary's collective farms and claptrap housing. The factory is one of Ukraine's most impressive monuments to the wonders of foreign investment.
The company cut the ribbon on the Brovary plant late last year, marking the end of two years' worth of effort for the company.
It has been a formidable investment, and with 150 new jobs at the bottling plant, a boon to the local economy. According to Coca-Cola Ukraine representatives, the factory consumes in an average month 3,000 tons of sugar, 30,000 cubic meters of water and 1.5 million kilowatts of electricity.
A good deal of procurement is local, and the company boasts that it has paid Hr 70.4 million into the Ukrainian budget. It also boasts of being Ukraine's largest foreign investor, at $267 million.
Coca-Cola is happy to publicize all that. But it's decidedly less anxious to speak about substantial layoffs, a thorough management shakeup, a facility shutdown and allegations by two former advertising agents that the company does not pay its bills.
The company currently employs around 900 Ukrainian employees and 10 expatriates. That's still a sizable operation. But it represents what ex-employees say is a 50-percent rollback in staff from pre-crisis levels.
Even Coca-Cola, which fiercely guards corporate secrets – especially less than flattering ones – admitted that there had been some rollback in staff. Technical Director Ivan Tymkiv said – in true corporate-speak – that it was part of a plan to 'optimalize the logistics of the company.'
Ihor Kirilyuk, Coca-Cola Ukraine's manager for external relations, downplayed the staff reductions as well, saying that the numbers depend on the season.
Company executives would not disclose what the staffing level was one year ago.
Speaking on the condition of anonymity, a former employee of Coca-Cola's head office in downtown Kyiv's Maculan building, said that, in her estimation, up to half of the administrative staff was pink-slipped this year.
A high turnover in the expatriate management also contributed to a chaotic atmosphere, she added.
Allegations of poor management at Coca-Cola Ukraine also spilled over into a nasty public feud with its former advertising agency, Visage. The two companies took to the opinion pages of the Post in February to air their grievances over the relationship.
Helen Staritsky, Visage's managing director, wrote that Visage 'unilaterally took the decision to stop working for Coca-Cola in October 1998 … due to continued non-payment by Coke.'
Staritsky charged that the bottling giant was nine months in arrears. Visage representatives also confirmed privately that Coca-Cola Ukraine had undergone a thorough expatriate management turnover in late 1998, and that the old management team was mostly to blame for those arrears.
Ad agency Leo Burnett also ended its account with the Coca-Cola brand Fanta earlier in 1998, calling the company an 'unsatisfactorily organized client,' according to Staritsky's letter.
Coca-Cola did not dispute the claim of non-payment in a response to Staritsky. A Coke spokesman wrote that in fact Coke had 'severed' its relationship in writing with Visage. It did not specify why.
Besides cutting employees, Coca-Cola has also been cutting back on its canning operation. Serhy Litvinenko, the manager of product quality at the Brovary plant, explained that canning was the most expensive form of package and the company had ceased canning beverages as a cost-cutting measure.
The cut backs would seem to be a reaction to losses suffered by the company since the August crisis. Coca-Cola Ukraine's parent company, Coca-Cola Beverages, said in March that its operations in the Ukraine and Belarus were mainly to blame for its 9 percent dip in 1998 cash operating profits, Reuters reported.
The company said its sales volumes were down 11 percent in Ukraine in 1998, and admitted that it had closed plants and cut jobs in Ukraine as a response.
Coke has clearly been unable to successfully battle the bad economy – something it has little control over. Thus, to right its fortunes Coke is fighting elements over which it does have some control.
One company mission is to increase the battle against consumer piracy. In Brovary, Tymkiv put a raft of Coke brand lookalikes on display, including dubious-looking bottles of 'Spreite' and 'Fanfa.' Consumers, he said, were being misled by products that had hijacked the company's claims to quality control.
Coke executives also appeared confident that they can increase demand by dispelling some of the urban myths that circulate about the company's products.
Company officials treated the press corps to a slide show on the nutritional value of their beverages, and stressed that their plant was an alcohol- and nicotine-free facility.
Plugging Coca-Cola – the soft drink – as nutritional may be far-fetched. A more realistic argument is that Coca-Cola – the company – is nutritional for Ukraine's economy, at least when it's healthy.
When will the beverage giant be healthy again? That will depend largely on the Ukrainian economy.
