PepsiCo puts itself in the firing line with SodaStream purchase

The company profited from an Arab embargo on Coca-Cola, but it’s now defying the boycott call

Bottles of Pepsi sit in a cooler at a gas station in San Francisco, California. AFP

SodaStream’s rise to prominence has been tarnished by a years-long, worldwide call for a boycott of its products. That net may about to be cast wider with the announcement on Monday that PepsiCo is slated to purchase the Israeli fizzy drinks company for $3.2 billion.

SodaStream produces home-carbonation machines and has been at the centre of a fiery boycott campaign because it once based one of its manufacturing plants in an occupied West Bank settlement, which much of the international community deems to be illegal under international law.

The deal adds another dimension to the SodaStream story given PepsiCo’s curious role in the Middle East and the economics of boycotts. It is also a deal that now threatens to tarnish the PepsiCo brand with the same boycott brush that has beset SodaStream for years.

Omar Barghouthi, the co-founder of the Boycott, Divestment and Sanctions Movement (BDS), said in a statement reacting to the deal that SodaStream was still "subject to boycott" in the movement for equal Palestinian rights. A campaign official told The National on Thursday that the BDS National Committee was now "deliberating" whether to extend that boycott to PepsiCo after its purchase. PepsiCo did not respond to a request for comment about any potential boycott.

The American multinational will now own a new SodaStream factory in the Negev Desert that the movement says supports Israel’s policy of displacement against indigenous Bedouin-Palestinians citizens of Israel. The company is also accused of mistreating Palestinian and Bedouin labourers, hired as they present a cheaper alternative to Jewish Israelis.

While PepsiCo sees SodaStream as a critical foothold in its quest to dominate the healthy fizzy drinks industry – a market its rivals such as Coca-Cola have cornered – the level of due diligence in seeking to buy the company is unclear.

PepsiCo CEO Ramon Laguarta (R) and CEO of SodaStream, Daniel Birnbaum (L), shake hands while posing during a joint news conference in Tel Aviv. EPA

For more than three decades, PepsiCo has enjoyed outsized influence in the Middle East thanks to a historic boycott of its major rival on the eve of the Arab-Israeli war. In 1966, Coca-Cola was barred from Egypt and other Arab countries as part of an Arab boycott of Israel and international companies doing business with the country. Ironically, Israeli leaders called for a similar boycott of Coca-Cola in the early 1960s for not having a manufacturing plant in Israel.

By the time Egypt allowed Coca-Cola back into the country in the late 1970s as part of its peace agreement with Israel and secret negotiations with the United States, the country was in the midst of an economic crisis. PepsiCo, which used Coca-Cola’s decades-long absence in thirsty Arab markets, established itself as the dominant beverage company. Despite Coca-Cola’s ability to claw back market share, PepsiCo is still the clear favourite in the region.

The Coca-Cola boycott harkens back to a time of unity around boycotts of Israel and the companies enabling the state to flourish. This makes PepsiCo’s purchase of SodaStream all the more bewildering. As one of the most successful Israeli companies outside the technology sector, SodaStream faced intense backlash for maintaining manufacturing plants in Israeli settlements in the occupied West Bank.

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For the BDS Movement, a campaign that advocates for applying economic and political pressure on Israel to achieve equal rights for Palestinians, SodaStream was an easy target. The company was highly visible in European and American markets thanks to a smart expansion strategy. It operated its business from an illegal Israeli settlement to take advantage of cheaper Palestinian labour, while the Israeli government gave it tax breaks and other subsidies for operating in a West Bank settlement.

Even liberal Jewish pundits, such as the American journalist Peter Beinart, had little room but to support a boycott of SodaStream (until it relocated to a plant inside of Israel's internationally recognised borders in 2015). Then the American actress Scarlett Johansson appeared in a SodaStream advert during the 2014 Super Bowl, and the debate around the company reached a fever pitch.

Ms Johansson's partnership with SodaStream sparked an avalanche of negative criticism over the company’s operations in the West Bank. Ms Johannsson even left her position as an Oxfam goodwill ambassador, citing a fundamental difference of opinion due to Oxfam’s development work with Palestinians in the West Bank. It was the ultimate form of negative publicity for SodaStream. In the wake of the Super Bowl advert and after months of pressure by BDS activists,

SodaStream agreed to end its West Bank operations and move to a plant in southern Israel. For a movement Israel tried to paint as marginal, SodaStream’s decision to move was a major victory for BDS activists worldwide. It demonstrated that the campaign had the power to inflict genuine economic harm (or the threat of such harm) on Israeli companies that violate international law by operating in the West Bank.

Given PepsiCo's intimate experience with boycotts and the symbolism of SodaStream as a target for the BDS campaign, the decision to buy out SodaStream seems to defy logic. Indeed, SodaStream CEO Daniel Birnbaum boasted to Israeli media that the $3.2bn buyout was a victory over the boycott movement and highlights the Israeli economy's inherent strength.

One can only assume that PepsiCo conducted detailed due diligence before putting the buyout offer on the table. In this process, the possibility of negative publicity for purchasing the controversial Israeli company was surely debated and, ultimately, the fallout was understood to be worth it in the long-run.

But support for BDS remains strong among the region’s young people and non-violent action against the Israeli occupation has not run its course. Quite the contrary. The pressure that forced SodaStream to move its operations out of the West Bank is getting stronger and being led by a new generation of activists for Palestine.

PepsiCo’s buyout of SodaStream reflects the long road that lies ahead for Palestine’s non-violent activists. But the drinks giant will not be able to escape the fact that it is now complicit in the Israeli occupation of the Palestinians.