Pepsi's Plan to Make Litter Green

CEO Nooyi: "The follow-through hasn't been there"

The U.S. beverage industry produced 224 billion bottles and other containers in 2008. Most of them ended up in gutters and wastebaskets. Even David P. Steiner, CEO of Waste Management, (WM) which runs 109 recycling facilities, concedes that he has tossed his three sons' empty bottles into a trash can when cleaning out his car at a gas station because no recycling bin was available. "We're not set up with the infrastructure to do what we want to do," he says.

Now, Waste Management is teaming up with PepsiCo (PEP) and the nonprofit Keep America Beautiful to make it easier—and lucrative—to recycle. This year they will install several thousand "Dream Machines" to accept plastic bottles and cans at gas stations, convenience stores, and other areas. Jeremy Cage, who heads the project for PepsiCo, says he's trying to recover "the unreachable bottle"—those sipped from by customers outside the office or home. Adds PepsiCo CEO Indra Nooyi: "The follow-through hasn't been there."

Coca-Cola (KO) has also clambered aboard the green bandwagon. In 2009 it teamed up with United Resource Recovery to open the world's largest plant to recycle polyethylene terephthalate (PET) into new bottles. Nestlé (NSRGY), which owns Perrier, Poland Spring, and other water brands, forged a partnership with Waste Management last summer with recycling kiosks in about 70 Whole Foods (WFMI) stores.

Why would these big producers of litter go green? Public image, of course, but other forces are at play as well. Pepsi and other beverage companies make bottles out of PET, a petroleum product. When oil prices are high, it's more attractive to use recycled PET. (Pepsi leads the industry with about 10% recycled PET in its bottles.) The companies also don't like container deposit laws, now in 11 states, meant to spur recycling. Deposits are costly for bottlers and make drinks pricier for consumers. Then there is the good of the planet. "Environmentally, it's the right thing to do," says Nooyi, "and it's an incredible way to create a closed-loop system."

Still, altering behavior is hard. Cage and Nooyi both say "green is the new beige," with consumers so inundated with eco-friendly slogans that they become immune to them. So at least 3,000 of the machines will be computerized kiosks that give users points for each bottle or can they insert. Points can be redeemed for movie tickets and other rewards at Waste Management-owned Pepsi will lease the machines from Waste Management and will pay the company to haul the containers away. As part of the program, PepsiCo will donate money to the nonprofit Entrepreneurship Bootcamp for Veterans with Disabilities. "It's not enough to benefit the environment," says Cage. "There has to be something in it for you."

The bottom line: Offering rewards for bottles and cans may help Pepsi reach its goal of boosting U.S. beverage container recycling rates.

With Duane Stanford

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