Somaliland is one of the latest spots the company found a base out of which Dasani Bottled Water of SBI, a franchise company of Coca-Cola,  can sell its brand without any fear of inspection or reprisal.

Dasani,  its sponsors and manufacturers have fully taken advantage of a prevailing environment governed by corruption, low-intellect , unprofessional inspectors, lax government guidelines, virtually non-existent consumer protection laws and high clan fever that insures one according to the clan strength of a firm’s principals.

Backed by its powerful owner, Coca-Cola, the Dasani label has slowly taken over the water market with the help of PR fallacies that have no bases the foremost of which the brand passes all scorecards with flying colors. Dasani is gradually pushing out of the market locally-owned,  water bottling plants in Hargeisa, Burao, Borama, Berbera and Gabiley such as Durdur, Maaxda, Biyo Saxa, Mina, Saxansaxo & Zamzam.

In fact Dasani claims are utterly false. Available resources point to the opposite.

Dasani bottled water was rated very low on many scores by the United States Environmental Working Group (EWG): EWG’S BOTTLED WATER SCORECARD, 2011: SUMMARY OF FINDINGS.

This caused, after the findings were released a sharp drop to Coca Cola’s Dasani Bottled water. It also forced the company to modify its label and to add some reassurances to consumer on it.

Coca-Cola, not keen to continue being projected in this negative light in the United States, sought other major markets in Asia and Africa.

The company, for instance, did not adequately answer three basic research questions put to it in a 2011 EWG report::

• Where does the water come from?
• Is it purified? How?
• Have tests found any contaminants?

In the EWG report the company scored either a ‘D’ or ‘F’ rating in the scorecard employed on a number of crucial areas deemed critical to the health of the consumer.

Below are some of the findings of that report to be found at: http://www.ewg.org/research/ewg-bottled-water-scorecard-2011/summary-findings#.WXDKBYh97IX

Eight of the 10 top-selling domestic brands earned a D or F for transparency. Another earned an unimpressive C. These nine brands don’t label the specific location of their water source and treatment method or provide contact information for consumers to get information on water purity. They include Pepsi’s Aquafina brand, Coca-Cola’s Dasani, Crystal Geyser and six of seven brands produced by Nestlé Waters NA. Of the 10 top domestic brands, only Nestlé’s Pure Life Purified Water brand lists a specific water source and treatment method on the label and provides a water quality testing report upon request.

Large and small brands alike withhold basic information about their products. Labels of nine of the 10 top-selling domestic brands do not identify their specific water source or treatment method or provide contact information for consumers seeking additional information on water quality. These big brands include Pepsi’s Aquafina, Coca-Cola’s Dasani, Crystal Geyser and six of seven brands produced by Nestlé Waters NA. Of the 10 top domestic brands, only Nestlé’s Pure Life Purified Water lists a specific water source and treatment method on the label and provides a water quality testing report upon request. Here are some of the grades major brands earned on EWG’s scorecard:

• Pepsi’s Aquafina Purified Drinking WaterThe label says the water “originates from public water sources” but fails to name them. The water is treated with a process called “HydRO-7™” that is not explained on the label. Only three of the 10 Aquafina labels assessed list a phone number for consumers seeking more information on water quality. Even with the phone number, obtaining a water quality report may not be possible; a company representative told EWG that water quality testing information was “proprietary.”
   
• Nestlé’s Arrowhead Mountain Spring Waterlists a number of California springs as possible sources for the products EWG assessed. The labels do not include any information on how the water is treated but do list a phone number and website for consumers seeking water quality information.
   
• CG Roxane’s Crystal Geyser Natural Alpine Spring Waterlists a number of “CG Roxane Source[s]” for the water EWG obtained but offered no specific names of springs. The labels provide no information on treatment, and a third of them do not direct consumers how to get more information on water quality.
   
• Coca-Cola’s Dasani Purified Waterdoes not name its source’s geographic site on the label, but notes that the water is treated by reverse osmosis. Six of the seven labels surveyed direct consumers to additional water quality information.
   
• Nestlé’s Deer Park Natural Spring Waterlists a number of springs in Pennsylvania, Florida, Maine, Tennessee and Maryland as possible water sources on the labels EWG assessed. No treatment method is listed and none of the labels give consumers a contact to get information on water quality.
   
• Nestlé’s Ice Mountain Natural Spring Water’slabel lists two springs in Michigan as possible sources but fails to describe its treatment methods. None of the labels give consumers a contact to get information on water quality.
   
• Nestlé Pure Life Purified Water’slabel indicates that the source is either “deep protected wells” in Florida, Michigan or California or the public water supplies of specified cities in Pennsylvania, Colorado or Florida. The water is treated either by reverse osmosis or distillation, and all the labels include contact information for consumers seeking additional information on water quality.
   
• Nestlé’s Ozarka Natural Spring Waterlabel says the water is “a blend of Roher Spring, Henderson County, TX and Piney Wood Springs, Wood County, TX” but it does not list treatment methods or include contact information for requesting water quality reports.
   
• Nestlé’s Poland Spring Natural Spring Water’slabel lists a number of springs in Maine as possible sources but does not identify treatment methods or contacts for water quality information.
   
• Nestlé’s Zephyrhills Natural Spring Water’slabel lists four springs in Florida as possible sources but provides no information on whether or how the water is treated or contacts for obtaining water quality information.

Bottled waters that offered no geographic source information on their labels in 2009 and 2010

Bottled waters with a water quality report without any testing data

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What the Dasani Tap-Water Scandal Can Teach Investors

Coca-Cola survived and thrived following the corporate scandal, and other businesses can, too.

Back in the mid-2000s, the bottled-water industry took a blow when the truth was revealed that many brands, such as Coca-Cola‘s (NYSE:KO) Dasani, were merely purifying tap water. The companies had to deal with consumer backlash, but it turns out there was no reason for investors to panic.

Here’s what we can learn from this episode from Coca-Cola’s past.

IMAGE SOURCE: DASANI.

Evaluating if the business is still sound

When scandal strikes, the first item on the agenda for investors is to evaluate the damage — specifically, whether the core of the business operations are intact or if the revelation has done some permanent damage.

In Coca-Cola’s case, bottled water was and still is a side endeavor. When it was revealed that Dasani was not sourced from some special location, the subsidiary beverage business was still new. Coca-Cola had launched the brand in 1999.

In response to public outcry, Dasani and other bottled-water brands that source from a municipal water supply started to publish where they were getting their water and how it was treated.

It was a potentially catastrophic blow for the fledgling bottled-water industry, and share prices fell at the time. However, because Dasani was merely riding sidecar to Coca-Cola’s main carbonated-drink engine, the overall business continued to grow.DATA BY YCHARTS.

The first lesson learned is this: When a business you own suffers a PR mishap, consider how detrimental it will be to overall revenue and profitability. Has something fundamentally changed with how the company conducts business? If the answer is no, proceed to Step 2. Such was the case with Coca-Cola.

Betting on a recovery

Coca-Cola shareholders who panicked and sold during the Dasani debacle probably regretted the decision. The incident eventually blew over, and shares rebounded. The fact that Dasani was nothing more than fancy tap water turned out to be just a bump in the road.

Today, Coca-Cola stock isn’t lighting the world on fire with above-average returns, but it is near the same total return (which accounts for reinvested dividends) as the S&P 500 ever since the incident. There’s a reason this company has been a longtime mainstay of Warren Buffett’s portfolio.DATA BY YCHARTS.

And that leads to the second and more valuable lesson: When disaster seems to loom over a business you own, if the business remains strong, it could be a good time to buy more shares. Looking at the preceding chart but instead beginning in 2005 — when Coke stock was beaten up following the Dasani brouhaha that started when it had to pull the water from shelves in the U.K. following the tap-water revelation — illustrates the impressive difference that buying on the dip can make.DATA BY YCHARTS.

It’s also important to remember that public opinion can be quite fickle. What was once an issue is long forgotten, as Coke’s bottled-water business has continued to grow into a big moneymaker over the years. The company’s still-beverage segment, which includes water brands such as Dasani, speaks for itself:

DATA SOURCE: COCA-COLA EARNINGS REPORTS. YOY = YEAR-OVER-YEAR.*IN 2017, COCA-COLA BEGAN SEPARATING ITS WATER AND SPORT-DRINK BUSINESS FROM OTHER STILL DRINKS SUCH AS TEA AND JUICE.

When a company you own is getting raked over the coals, it’s important to do some digging before making a decision to sell. If business operations remain intact, a rebound could be around the corner. Coke’s Dasani tap-water scandal and the stock’s ensuing performance is a perfect example.

By Nicholas Rossolillo (nrossolillo)

Jun 23, 2017

Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

By  Abdikareem M Abdi