A Town Torn Apart by Nestlé
Tucked into the foothills of Mount Shasta, the Northern California town of McCloud has no stoplights and one grocery store. A former logger's El Dorado, McCloud fell on hard times in the 1980s when it started running out of trees to cut down. But with its drop-dead panoramas and crisp, clean air, the burg started to limp back in the 1990s. Today it is a world-renowned paradise for trout anglers, a respite for burned-out boomers looking to escape the status race, and a hotbed of New Age seekers, some of whom jet in from Japan to meditate and chant in what they regard as a spiritual vortex.
It is here that Nestlé Waters North America (NWNA), a subsidiary of the Swiss food and beverage giant, plans to operate one of the largest spring-water bottling plants in the U.S. The 1 million-square-foot facility—picture five Wal-Mart (WMT) supercenters strung together—is to rise on the site of McCloud's defunct lumber mill, a 250-acre swath of land that bends around the base of the mountain. Nestlé aims to draw 1,250 gallons a minute of water from McCloud's glacier-fed springs. The company would then pack 300 semi-trailers a day full of Arrowhead brand water, truck it as far away as Los Angeles and Reno, and sell it at prices that are as much as 1,000 times more than the cost of tap water. In exchange, Nestlé has agreed to pay McCloud roughly $350,000 a year for the water and create up to 240 jobs in and around the town.
That contract was signed nearly five years ago. Nestlé had hoped to have the plant up and running by 2006. But the company has yet to break ground on the abandoned mill site.
Nestlé Waters has run into a wall of opposition, prompting it to delay construction and resubmit its environmental permit application. Since learning about the bottling plant, nearly half of McCloud's 1,300 residents have mobilized into a well-armed resistance force. Furious that their elected representatives inked the deal without consulting them and worried about the potential impact the plant could have on Mount Shasta's delicate local hydrology, they have ordered up studies, signed up wealthy backers, and lobbied politicians.
Nestlé, the largest bottled water company in America and purveyor of the Perrier, Poland Spring, and S. Pellegrino brands, has faced similar opposition in towns from Maine to Michigan. Time and again, it has used its clout and legal firepower to get the plants open. Nestlé is determined to prevail in McCloud, too. At a time when soda sales are soft, it hopes to improve on its 32% share of the U.S. bottled water market.
But this time the company seems to be taking its foes more seriously. "I want all the t's crossed, all the i's dotted," says Kim Jeffery, Nestlé Waters' CEO. "I don't want anyone to say we didn't do it right." It's not hard to see why Jeffery is proceeding cautiously. Amid rising concerns about the deteriorating condition of America's lakes, rivers, and springs, Congress late last year convened hearings about the potential threat posed by bottled spring water. Meanwhile, environmentalists say the stuff contributes to global warming because it takes oil to make the bottles and then truck them from source to supermarket. These critics have coalesced into the "tappening" movement, which is urging people to drink the water that comes out of your tap. Already, upscale restaurants are banning bottled water, while the mayors of San Francisco and New York are urging residents to use municipal supplies.
"WE NEEDED AN INSURANCE POLICY"
So far, Nestlé's foes in McCloud have managed to delay the plant, not kill it. But they have allied themselves with the international environmental movement and made their cause bigger than one town. "At some point you make enough people mad," says Debra Anderson, a fourth-generation McCloudite and real estate broker, whose understated and articulate manner makes her a powerful opponent. "
If this plant gets built, it's going to be bad PR for Nestlé."
Nestlé employs 11 water hunters around the U.S. Besides monitoring water supplies, they search for new sources, typically in remote, pristine places like McCloud. A big part of their job is building relationships with locals, few of whom have dealt with a multinational. Dave Palais, 44, is one of the 11. Sturdy and upbeat, he's perpetually sunburned, a testament to the long weekend walks he takes with his wife and dogs. Palais holds a PhD in geology from Arizona State University and considers himself knowledgeable about watersheds.
Palais joined Nestlé Waters in 1996, about the time the bottled water business was starting to boom. He was managing the company's water supplies in Southern California near Palm Springs when drought hit the region. Going into 2003, Palais watched as the spring flows diminished. It was a wake-up call. "We were recognizing the vulnerability of our supplies in Southern California to things like drought [and] earthquakes," he recalls. "We needed to be in a position where we had an insurance policy, a backup source." In 2003, Palais' bosses in Greenwich, Conn., ordered him to set up a new bottling plant in McCloud. He sold his place in Corona, Calif., and moved to Redding, 70 miles outside town. Palais' gray Chevy Silverado pickup became a common sight in McCloud as the water hunter went about educating himself on local politics and signing up allies.
On the face of it, McCloud seemed like the perfect spot to build a bottled water plant. For years, the five elected board members of the community services district had morosely contemplated the town's rickety infrastructure, 14.5% unemployment, and $100,000-plus deficit. McCloud sits in the southeastern corner of Siskiyou County, a ranching and agricultural area where local budgets are constantly stretched. In McCloud, things were so bleak that former mill workers who once took care of their families in middle-class comfort were now mowing lawns and showing up in the checkout line with food stamps.
Many old-timers longed for the glory days of "Mother McCloud," as the McCloud River Lumber Co. was known. They remember the logging behemoth as a ferociously paternalistic employer that supplied workers with freshly painted houses, groceries, a doctor, firewood, and a sumptuous Christmas party with a present for every child. When a faucet dripped or a light switch broke, employees called the Mother McCloud repairman. Get fired, though, and a truck rolled up to haul you and your family's belongings away.
The lumber industry was suffering, but McCloud resident Doris Dragseth knew the town possessed another valuable commodity: glacier-fed springs that gush crystal-clear, 41-degree water straight to the tap. So delicious is the water that Dragseth and her husband, Bill, still fill up old milk jugs and take a few weeks' supply to their son in nearby Orland. Some McCloud residents half-jokingly suggest they could market the town to Botox fanatics as a fountain of youth. The water, according to local lore, accounts for many McCloudites' freakishly young appearance.
TOO BROKE FOR A LAWYER
Throughout the late '90s, McCloud's district board members tried to lure a bottler to McCloud. Dragseth, who ran an auto parts store with her husband before retiring, remembers thinking: "We need the jobs, we need the money." Various schemes came and went. Letters of intent were signed. But the deals went nowhere. McCloud even considered going into the bottled water business for itself. But trying to battle for shelf space was out of its league.
So from the moment Dave Palais arrived in town, the district board was susceptible to his ministrations. The mill, under new owners, was closing. What's more, Dragseth, by then a board member, and her colleagues considered Nestlé to be a classy company that might restore some of Mother McCloud's largesse. To cement the relationship, Palais invited Dragseth, another board member, and the town manager to two plants near Palm Springs.
Nestlé offered to pick up the tab, but legally the town had to pay its own way.
Dragseth recalls a gorgeous, first-class operation. She couldn't believe how quiet and well-run the plants were. "I came back extremely impressed with this company," says Dragseth. "They had beautiful break rooms for their employees with microwaves and anything else they wanted. It was a beautiful plant." Drag-seth's husband joked that he was thinking of junking retirement to work for Nestlé.
It wasn't long before the two sides were hammering out a contract for the five board members to vote on. McCloud's finances were so parlous it couldn't afford a lawyer. Nestlé covered the legal tab and all subsequent costs associated with the deal—including the time Pete Kampa, McCloud's town manager, and his staff worked on the project, fees for outside consultants, and all the preparations for the permitting process.
Few of McCloud's residents knew about the agreement. That is, not until September, 2003, when board members posted a notice in McCloud's post office announcing a town meeting to unveil the plan. Local business owner Richard McFarland did a double take when he saw the flyer. Like many in McCloud, he knew the town had long wanted to sell its water. But this was the first he'd heard about a contract or Nestlé. For McFarland, as for others, the name Nestlé raised a red flag. Wasn't this the company boycotted in the 1970s for promoting infant formula over breast milk to mothers in the Third World? Plus, Nestlé was the biggest food company in the world. How much water would they be sucking out of what many considered a sacred mountain with a world-class fishing river and a sensitive hydrology?
McFarland wasn't opposed to a new industry coming to town. But he had lots of questions, especially since his reclaimed-lumber business abuts the old mill. A few days later, on Sept. 29, he and 100 other residents piled into the elementary school gym for the Nestlé town meeting. As they waited for it to start, a TV beamed a continuous loop of CEO Jeffery extolling his company's environmental credentials. Many assumed a discussion would be had, questions fielded, and the community would then work together to assess options. They thought they were there to hear about a proposal. But after Kampa and Palais did their PowerPoints, the crowd was dumbfounded when the gavel struck and Dragseth and the other four board members voted unanimously to sign the contract right then and there. The deal was done.
McFarland and other residents were furious. "There was no public participation in the process," says McFarland. "That's where it falls apart for me." Dragseth concedes that the contract was done behind closed doors but counters: "You can't have a room full of people to negotiate. You'd have 50 different people wanting 50 different things."
When McFarland pored over the fine print of the contract, he felt sick. In his view, the town had practically given Nestlé exclusive rights to the water for 100 years. Town officials say they haggled and got the best deal they could. To McFarland, "the contract read like nobody on the services district knew what they were doing. It read like Nestlé's lawyers wrote it." The board members, for their part, recall being stunned by the opposition. "I couldn't imagine for the life of me why anyone would be against this," says Dragseth.
In November, 2004, Nestlé's foes convened a water forum in the McCloud High School auditorium. The organizers brought in scientists and activists critical of the company's operations. One of the star attractions was a retired librarian named Terry Swier, who led the fight against Nestlé in Mecosta County, Mich. Palais, say several people who were there, sat silently, his arms folded, as Swier told the crowd what happened after Nestlé arrived in her town.
In 2000, Nestlé had begun negotiating a 99-year, renewable lease with private landowners to pump 400 gallons a minute from a deer-hunting preserve called Sanctuary Springs that eventually feeds into Lake Michigan. Swier was aghast. Water levels in the Great Lakes were at record lows.
Water quality was declining, the result of a toxic brew of industrial runoff, pesticides, and sewage. Swier and other activists hired a scientist to examine what impact Nestlé's operation would have on water levels. His tests projected severe drop-offs in flow levels.
The residents decided to ask the courts to halt the plan, and threw bake sales and bingo tournaments to pay for the move. Despite the suit, Nestlé went forward and in 2002 opened the $150 million plant, cranking out Ice Mountain and Nestlé Pure Life water each day. A year later the Mecosta County circuit court ordered Nestlé to halt operations because the plant would deplete nearby wetlands, lakes, and streams. Nestlé appealed and continued pumping. (Eventually, the Court of Appeals upheld most of the lower court's findings about potential harm to the local watershed but ruled that jobs and the economy were more important. Still, Nestlé agreed to halve the amount of water it pumped to 218 gallons per minute.)
Swier's presentation had a profound impact on the people in the school auditorium that night. She told them: "Water is for life, not for profits." After the meeting the audience ate a chicken-and-pasta dinner paid for by four Nestlé opponents. Palais went out to his truck and returned with several bottles of Arrowhead water for the pro-Nestlé people sitting at his table. Everyone else drank punch, coffee, and tap water.
McCloud had become two mutually hostile camps. And it wasn't long before things turned ugly. Former board member Ken Goates blames his two heart attacks on the rancor. Drag-seth found herself denying rumors that Nestlé had bought her a condo in Switzerland. Debra Anderson's tires were slashed. Pro-Nestlé residents started boycotting her mother's grocery store, and sales fell by half, she says. After receiving crank calls, Kampa recalls standing in line to get fireworks with his daughter and hearing people behind him whisper that he was a Nestlé shill with bank accounts in Switzerland. Enough is enough, his wife said. Kampa took a job in another town.
The opposition was just getting going, however. The main anti-Nestlé citizens' group, the McCloud Watershed Council, banded together with other pro-watershed groups across the country. Funded by wealthy San Francisco-area families, including the Haas clan of Levi Strauss (LSNA) fame, Nestlé's opponents commissioned an independent economic analysis to study the Nestlé plan—both the benefits and the costs.
The much-anticipated study, conducted by Portland (Ore.) public policy consultancy EcoNorthwest, came out last October. The 63-page report found Nestlé would pay a fraction as much for McCloud's water as elsewhere; that the jobs and revenues promised by Nestlé in other communities never materialized; and that McCloud's board failed to factor in the costs the plant would exact in terms of wastewater, truck traffic, and air pollution. "There is a great risk that McCloud will be giving away too much for too little in return," the report stated. "We find that rather than provide an engine for economic growth, Nestlé's proposed facility would impose costs and obligations on the community that would outweigh the benefits." Palais e-mailed the report back to Greenwich, where executives started working on their line-by-line rebuttal. They eventually disputed every one of the report's findings.
A pall of aggrievement hangs over Nestlé Waters' headquarters. There's an attitude that essentially asks: Why us? CEO Jeffery has been in bottled water since the late 1970s. He worked at Perrier until Nestlé bought it in 1992 and put him in charge of Nestlé's North American water business. And he has long seen his product as a healthy alternative to soda in a nation that is increasingly obese.
For several years now, Jeffery says, he has watched other companies win green cred for what he deems smoke-and-mirrors publicity stunts.
A couple of years ago he recalls not being able to sleep, getting up and heading to his Greenwich study to write down the 10 things Nestlé was doing to reduce its carbon footprint. One of those things was designing the lightest-weight water bottle currently on the market. Jeffery also notes, correctly, that water bottlers use less H2O than makers of soda or beer. "It's a spit in the ocean," he says.
But soda and beer makers typically don't mine pristine springs; they use tap water. So, for that matter, do Nestlé Waters' main rivals, Coca-Cola's (KO) Dasani and PepsiCo's (PEP) Aquafina. It's instructive that Nestlé Waters was the only company asked to attend Congress's first-ever hearings on the bottled water industry in December. "I had my trepidations about what to expect," says Nestlé Waters' corporate affairs chief Heidi Paul. She was right to be nervous; the hearings didn't go so well. Paul testified that there is no scientific proof that Nestlé's bottled water operations cause harm. But the panel of assembled experts pretty much drowned her out.
Congress continues to investigate the situation in McCloud as part of an overall probe into regulations governing groundwater. Meanwhile, McFarland and his allies vow they will keep making life hell for Jeffery & Co. So far they have won some concessions from Nestlé. The company has agreed to do more studies to understand McCloud's local hydrology better and to extract less water than originally planned. It also says it will redo its environmental permit draft with the county. That will slow construction for at least an additional two years.
In the end, Jeffery will likely get his plant in McCloud. But the battle in Northern California—and the growing antipathy to bottled water—will only make it more difficult the next time the Nestlé Waters boss dispatches one of his water hunters to find a new spring.