Soft drinks company SodaStream, which made headlines and drew anti-Israel boycott pressure in January when it hired actress Scarlett Johansson as a spokeswoman, is considering closing down its factory in the West Bank settlement of Mishor Adumim and moving operations there to a new plant in the Negev, CEO Daniel Birnbaum said in an interview, insisting that criticism over its location is not playing a part.
Speaking to business daily The Marker, Birnbaum said that any decision on the matter would be based strictly on economics. “The European boycott on products made in the West Bank will not be a factor,” Birnbaum said.
An agreement between SodaStream and the Israeli government on the construction of a new factory in the Negev, Israel’s southern desert, indicates that the move is business-based, not politically motivated. Israel has been promoting business ventures in the mostly empty Negev for decades.
SodaStream has become a favorite target of the BDS (boycott, divest, sanction) crowd, which boycotts products made in the West Bank and/or Israel (policy varies from group to group). Although shelves of retail stores in Europe and the US are filled with products made using Israeli technology or components – Intel computers are a good example – SodaStream is one of the more prominently identifiable and successful made-in-Israel products with a West Bank settlement connection, and as such it has become a magnet for those protesting Israeli policies regarding the Palestinians.
Johansson stirred a vehement debate last January when she accepted the role of spokeswoman for SodaStream. The BDS movement demanded that the star step down from the post, accusing her of supporting “apartheid” because of the company’s West Bank facility.
After international feed-the-hungry group Oxfam slammed her for representing a company with a factory located in a settlement, Johansson responded by stepping down from her post as an Oxfam Ambassador, citing “a fundamental difference of opinion” with the group.
“SodaStream is a company that is not only committed to the environment but to building a bridge to peace between Israel and Palestine,” she said in January, “supporting neighbors working alongside each other, receiving equal pay, equal benefits and equal rights. That is what is happening in their Ma’ale Adumim factory every working day.”
In an interview with a British newspaper in April, Johansson added that she “believed” in the company and praised its environmental record. Johansson said she was “not an expert on the history of this conflict, and I’ve never professed to be. But it is a company that I believe in, that I think has the ability to make a huge difference, environmentally. [CEO] Daniel Birnbaum has said many times that this factory is one he inherited, and that he doesn’t want to fire people – the majority of those people being Palestinian,” she said.
The Mishor Adumim plant — the first of SodaStream’s eight Israeli locations and 22 worldwide — employs 1,300 workers; 950 Arabs (450 Israeli and 500 Palestinian) and 350 Israeli Jews. Salaries and work benefits — management asserts and workers confirm — are equal for all workers in comparable jobs, regardless of ethnicity or citizenship. The factory secures Israeli work permits for its Palestinian employees as well as rides from their home and back, SodaStream’s Chief Operating Officer Yossi Azarzar told The Times of Israel in February.
According to BDS groups, it’s their hectoring of SodaStream, and Johansson as its spokesperson, that has hurt the company’s business.
And at first glance, Birnbaum’s claim that the company is not making decisions based on the boycott seems questionable. Sales of the company’s sparkling water soft-drink system are down about 15% to 30% this year, depending on how analysts interpret the raw data. And its stock performance has been even worse. Traded on the NASDAQ, the company’s shares are down about 35% so far in 2014.
But experts say it’s not the boycott that’s causing the fall.
For SodaStream, the main battleground is in the US, which is responsible for about a third of its revenue, and with sales there falling precipitously, the company is in some trouble. According to experts at stock intelligence site Seeking Alpha, many analysts are currently recommending investors buy SodaStream shares (mostly on rumors that the company is a candidate for a buyout), but “investors seem to be ignoring the fact that its earnings are declining at an alarming rate. While SodaStream’s existing user base might be buying more of its products, it is clear that the company is unable to land more customers.”
The drop in sales has nothing to do with BDS activities, say analysts. Rather, SodaStream has been doing so well, pioneering a product that no American company even considered marketing in recent years, that some heavy-hitting competitors – among them Coca Cola – are getting into the business. Earlier this year, the soda giant bought a 10% interest in Keurig Green Mountain, known for its single-serve coffee makers and coffee capsules. But the company is planning to come out with its own cold drink system, similar to SodaStream’s – and the combined marketing might and market share of those two companies is scaring investors off SodaStream stock, according to analysts.
When faced with this kind of competition, a company like SodaStream would usually come out with a new product to reach new segments of the market, or run specials and cut prices to attract new customers. But to do that, SodaStream would need to revamp and cut costs in order to garner the money needed to run an aggressive marketing campaign – and with the company soon to be pitted against Coke for market share during a period when its stock and revenues are down, SodaStream is going to have to cut a lot of costs to get the money it needs.
That’s the background of the idea to shut down the Mishor Adumim plant, and move operations south to a new, streamlined plant already under construction in Lehavim, outside Beersheba. The company is considering consolidating operations from some of its other plants in Lehavim as well. The company has a second Israeli plant, in Ashkelon, as well as several smaller operations abroad. Moving production to Lehavim, Birnbaum said in the interview, would allow the company to consolidate operations and cut costs, with more efficient and higher quality production.
There’s another reason for the move to the Negev – a multi-million dollar subsidy the company is eligible for as a result of the move to Lehavim. In a deal signed in 2012, SodaStream agreed to build a production plant in the newly established Idan Hanegev Industrial Zone, with an estimated cost of NIS 280 million ($78 million). The plant is set to employ about 1,000 people, according to Ministry of the Economy documents. In return, SodaStream is set to receive a 20% subsidy, worth as much as NIS 60 million (nearly $16 million). SodaStream has about 1,400 employees worldwide, 900 of whom work at Mishor Adumim – so to fulfill its obligations, the company would either have to nearly double its workforce or move it to the Negev.
With sales shrinking and competition gearing up, the likelihood of the former happening is unlikely in the near term – and that makes the closure of the Mishor Adumim plant a very definite possibility. Ironically, considering the stridency of the anti-Israel movement that has targeted the SodaStream plant there, the people who would be hurt most by the closure of the plant will be the hundreds of Palestinians who work at Mishor Adumim.
They are set to be replaced by Bedouin residents of the Negev, who are Israeli citizens, at the new plant. At the 2012 signing of the subsidy deal, the mayor of the Israeli Bedouin city of Rahat, Fayez Abu Sahiban, said that the SodaStream factory would be “an economic anchor for the Negev and in particular for residents of Rahat, who will have an opportunity to earn a living there. This factory could help significantly lower the unemployment rate in Rahat, especially among Bedouin women.”