Message in the Drink Bottle: Recycle Branded-Water Craze Adds to Piles of Plastic, Spurring Innovation at Coke, Pepsi By BETSY MCKAY August 30, 2007; Page B1, WSJ

When activists and some top chefs uncorked an attack on bottled water as wasteful and a contributor to global warming, beverage makers showed few signs of concern, partly because so many consumers are guzzling branded water as a chic, healthier alternative to soda.

Things are starting to change. Following months of unflattering news coverage, press releases and even a resolution by the U.S. Conference of Mayors calling for research into the impact of discarded bottles on municipal waste, the beverage industry is stepping up efforts to promote recycling and use more recycled plastic in production of its soda, water, juice and tea bottles. Some companies are reformulating containers to reduce the amount of plastic.

Coca-Cola Co., with a 36% share of the $106 billion-a-year U.S. nonalcoholic ready-to-drink beverage business, says it plans to build a plant that will be able to recycle as many as two billion 20-ounce bottles a year. Atlanta-based Coke won’t say exactly where the plant will be located or when it will open. The company already has invested $41 million to build recycling plants in Australia, Austria, Mexico, the Philippines and Switzerland. But the move reflects a wider push by Coke to boost the amount of recycled material in its U.S. bottles to at least 10%, up from just under 5% in 2006.

Coke and its biggest bottler, Coca-Cola Enterprises Inc., have also formed a company that plans to establish recycling centers in the U.S. to collect recyclable beverage material. “Our vision is to no longer have our packaging viewed as waste but as a resource for future use,” says Scott Vitters, Coke’s director of sustainable packaging.

Meanwhile, the American Beverage Association trade group has formed a task force of executives from Coke, PepsiCo Inc. and Nestlé SA’s U.S. water unit to look for ways to spark more consumer interest in recycling. One possibility is throwing the industry’s weight behind efforts to clone the most effective recycling programs. “We have a responsibility to do a better job on recycling,” acknowledges Kim Jeffery, president and chief executive of Nestle Waters North America Inc., Greenwich, Conn. Mr. Jeffery is heading the task force, which had its first meeting Aug. 6.

Until now, Coke, Pepsi and other beverage companies typically fought laws mandating deposits on bottles and cans. Now, though, some beverage makers are starting to warm up to financial incentives for recycling. Coke has invested more than $2 million in RecycleBank LLC, a Philadelphia curbside recycling company that gives consumers in Pennsylvania, New Jersey and Delaware coupons in exchange for their throwaways.

The program will expand soon to parts of New England, says Ron Gonen, RecycleBank’s founder and CEO. The company also is in talks with PepsiCo about a potential cash infusion similar to Coke’s, according to Mr. Gonen and a spokesman for Pepsi, based in Purchase, N.Y.

One big reason why beverage marketers are mounting a counterattack is that bottled water is widely seen as part of the answer to the soda sales slump. Bottled water has just a 17% U.S. market share, compared with 66% for sodas, according to Beverage Digest, a trade publication. But bottled-water volume rose 11% in the first half of 2007. Soda volume decreased 5.9%.

The tidal wave of bottled water has increased the beverage industry’s ravenous appetite for plastic. Demand for recycled polyethylene terephthalate, familiarly called PET, is especially fierce, because it can cost as much as 50% less than newly made plastic. PET bottles are cheap, lightweight and far more convenient than refillable glass bottles that require gallons of water to be cleaned and are heavier to transport.

Coke and Pepsi once thirsted for glass bottles, which could be resold several times. Then came disposable bottles and aluminum cans, along with litter that prompted angry lawmakers to rekindle the idea of adding a small deposit – usually five cents – to the purchase price. The beverage industry’s opposition didn’t fully succeed, and 11 U.S. states now have deposit laws, including California, New York, Massachusetts and Hawaii. But only four state laws extend or are preparing to extend deposits to include bottled water.

Deposit laws have had mixed success in spurring recycling. In the U.S., just 23% of recyclable PET bottles and jars were actually recycled in 2005, down from 40% a decade earlier, according to the National Association for PET Container Resources.

Still, the U.S. Government Accountability Office said in a December report that a federal bottle-deposit bill could help boost municipal recycling rates. In California, which has a deposit law and widespread curbside recycling, the beverage-container recycling rate reached about 60% in 2006, according to the California Department of Conservation. The Container Recycling Institute, a nonprofit group that supports deposit laws, says the beverage-container recycling rate in deposit states is about 70%, while it is about 34% nationwide.

Fending off the specter of a federal bill could require the beverage industry to show continued signs that it is willing to change. Coke and Pepsi both have reduced the amount of plastic in their soft-drink bottles, which are heavier than water bottles to preserve carbonation. Mr. Vitters says Coke will eliminate 100 million pounds of plastic from various products in the U.S. this year.

Pepsi, which already gets about 10% of the PET it uses in the U.S. from recycled materials, says it has trimmed the amount of plastic in its half-liter Aquafina water bottles by nearly 40% since 2002. The company is working on an even lighter version, a spokesman says. Nestlé, with regional brands Poland Spring and Arrowhead, recently introduced even lighter bottles.

Write to Betsy McKay at betsy.mckay@wsj.com