�Shruti Date Singh and Jennifer Kaplan
can do local better than anybody,” Schwarz says.
Consumers, especially millennials, want animals and workers treated well without compromising taste, convenience, or quality, says Fairlife cofounder Mike Mccloskey, a veterinarian turned farmer. He’s long been fixated on the comfort of cows and sustainable farming methods, such as converting manure into methane to power dairies.
The dairy industry has been striking out for decades in its efforts to get people excited about milk, as cereal consumption has slowed and soy and almond milk have cut into sales. Per capita milk consumption in the U.S. fell to about 19 gallons a year in 2015, according to the U.S. Department of Agriculture. At milk’s peak, in 1945, The average American consumed about 42 gallons. Clever advertising and marketing—including the legendary Got Milk? campaign, begun in the 1990s—did little to spur growth.
Since 2011, Dean has targeted kids and adults with its Trumoo milk, which comes in such flavors as cookies and cream and chocolate marshmallow. Parents like it because the milk contains no high-fructose corn syrup. Dairypure, on the market for about 10 months, appears to be building on Trumoo’s momentum. For the 12 weeks ended on Jan. 23, volume sales of Dean’s branded milk rose 1.6 percent, compared with a 7.3 percent decline in the same period the year before, according to Sanford C. Bernstein analyst Alexia Howard. Specialty milk sales jumped 21 percent in 2015, up from 9 percent growth in 2014, largely thanks to “the launch of Coca-cola’s high-protein Fairlife brand,” Howard says.
Some say Coke’s drive for dairy will be an uphill climb, given Fairlife’s premium pricing. “Somehow you’ve got to build a value-added case that there’s more to this,” says Ian Shackleton, an analyst at Nomura International.
Coke, which holds a minority stake in Fairlife, believes its efforts will pay off. Jones was semiretired when he connected with Mccloskey and his wife, Sue, in 2010. He urged them to team up with Coke, which has a vast distribution network and access to hundreds of thousands of supermarket shelves across the country. Two years later, Jones helped broker the joint venture. “We needed the marketing,” Mccloskey says. “We had everything except the structure to get it to consumers in every corner of the country.”
Fairlife can also tap Coke for guidance on research and development, chemistry, and marketing. Its board is split between members from Coke and farmers from the cooperative.
The soda giant takes a hands-off approach to the partnership, says Scott Uzzell, president and general manager for Coke’s Venturing and Emerging Brands group. “They know dairy better than anybody,” Uzzell says. “We know consumers.” and one alleged injury, according to filings by the company to U.S. regulators. By month’s end, Honda had to recall 53,000 cars.
The Civic is Honda’s best-selling model, and the misstep is a setback for the Japanese automaker and its new chief executive officer, Takahiro Hachigo. Since he took over in June, the 56-year-old engineer and Honda lifer has been trying to reassure analysts, dealers, and consumers that the spate of recalls in recent years associated with faulty air bags made by Takata and other quality-control problems are a thing of the past. He chalks up many of the challenges to a complicated organizational structure and inadequate communication among Honda’s units. “We need to improve on that,” Hachigo says.
Under the previous CEO, Takanobu Ito, Honda set an audacious goal in 2012 to double sales, to 6 million units, by March 2017. The automaker built plants in China, Indonesia, and Thailand and accelerated product development, placing huge demands on its engineers.
“Honda’s culture used to be more open and relaxed,” and engineers had more time to plan and test products, says Noboru Sato, a guest professor at Nagoya University who was a Honda engineer for 26 years and has written a book about the company. “But now, with so many new technology developments required to be competitive in the market—electric cars and autonomousdriving systems—too many tasks” are being put on them, he says.
Honda’s Fit and Vezel subcompacts were called back several times each for persistent engine and transmission glitches from 2013 to 2014. The carmaker says it’s also replacing more than 30 million Takata air bag inflaters, which can rupture and spray plastic and metal shards at passengers, after incidents that resulted in at least nine deaths.
Costly recalls and a stronger yen have contributed to a 19 percent slide in Honda’s stock this year. Its U.S. market share is about two percentage points short of where it was in 2009, and it’s lost ground to Toyota
52-week change in sales, week ended Feb. 20
Sales of Coca-cola’s flagship beverage
have gone flat
Soft drinks –0.2% Buttermilk –4.7% Regular milk –13.6%
Specialty milk +23.5% Organic milk +7.2% Milk substitutes +6.1% The bottom line Specialty milk sales jumped 21 percent in 2015, up from 9 percent in 2014, boosted by Coke’s Fairlife drink. “We have given the full control back to R&D, appointing people to be responsible for planning a product and strengthening its competitiveness.” ——Honda CEO Takahiro Hachigo
and Nissan in Japan. Overall, Honda expects vehicle sales to rise 8 percent, to 4.7 million units, for the fiscal year ending on March 31.
Hachigo plans to pull off what he calls a “fundamental transformation.” He’s reshuffled top management and is consolidating responsibility for product planning, development, and evaluation. “We have given the full control back to R&D,” he says, “appointing people to be responsible for planning a product and strengthening its competitiveness.”
Hachigo has pulled back from his predecessor’s sales targets and is slowing things down. Takehiro Kono, manager of a Honda plant in Yorii, north of Tokyo, says the company has beefed up quality checks on the Fit and Vezel cars made there. “The lead time needed to roll out a vehicle has become longer.”
Honda is also rethinking its global manufacturing network and plans to shift some production back to Japan from markets where the vehicles are sold. “Making a good global model is more efficient than introducing a number of variants for each regional market,” Hachigo says.
To lock in savings from the cheaper yen, Honda will begin exporting the Accord Hybrid sedan from Japan to North America for the first time this year, and it’s also considering exporting Civic and CR-V sport utility vehicles.
To revive sales, Hachigo is counting on several new models, including the redesigned Ridgeline pickup truck, the CR-V, and the Odyssey minivan in North America. He has big hopes for a locally produced Acura luxury SUV in China and the Freed minivan in Japan. The company plans to increase domestic production by 30 percent, to about 950,000 vehicles, by 2020.
Green cars are central to Hachigo’s plans. After the Clarity fuel-cell sedan goes on sale later this year, a plug-in hybrid version built on the same platform will debut by 2018. By about 2030, two-thirds of Honda’s sales will be hybrids, plug-ins, or fuel-cell vehicles, he says.
Takata remains a big concern, says Takashi Aoki, a fund manager with Mizuho Asset Management. “It’s hard to say the bad news is over.” As for the 2016 Civic recall, Hachigo played it down, saying that replacement parts are ready and repairs can begin and that the company has taken measures to prevent the error from happening again. The speed of Honda’s expansion “has been too fast, and that has increased the workload at the research center and the plants. It’s my top priority to change that.” �Jie Ma and Yuki Hagiwara, with Craig Trudell
The bottom line Hachigo has reshuffled Honda’s executive ranks and plans to raise domestic output by 30 percent, to 950,000 vehicles, by 2020.
restrictions on hundreds of disposal wells, reducing the amount of water disposed underground statewide by a total of 1 million barrels a day. The actions appear to be helping in some areas. The number of earthquakes in central Oklahoma declined 27 percent from the first to the second half of 2015. “Until the earthquakes disappear, the threat level will continue,” says Matt Skinner, an OCC spokesman.
In 2012 the most violent activity was southeast of Oklahoma City; today it’s in the northwestern part of the state. In a 30-minute period on Feb. 13, a trio of earthquakes registering as high as 5.1 rocked northwestern Oklahoma and could be felt in seven states.
About 1,000 of Oklahoma’s 4,000 disposal wells are in the Arbuckle formation, a layer of limestone that stretches hundreds of miles across the state. The Arbuckle acts like a sponge, soaking up injected wastewater. Scientists believe that in some cases that water is increasing pressure along Oklahoma’s extensive fault lines, causing them to slip and setting off earthquakes. Blaming a particular well for a particular quake, though, is nearly impossible. “We don’t necessarily have a smoking gun that shows the mechanism of how that pressure transmits across fault lines,” says Jeremy Boak, director of the Oklahoma Geological Survey.
While most of Oklahoma’s disposal wells are owned by oil and gas companies, some, like Andrews’s, are independent operations. Problems affecting other parts of the fracking industry are also hurting his bottom line. Four trucking companies that pick up wastewater and pay Andrews to dispose of what they’ve collected have gone bankrupt in the past year, leaving him with $85,000 worth of unpaid invoices. The deal “has ended up biting me in the rear,” he says.
Rick Jackson, who owns five disposal wells and 50 trucks in Oklahoma, is also getting squeezed. “The profits used to be fabulous,” he says. “Those days are gone.” Jackson’s wells, in the southern part of the state, haven’t been affected by the OCC’S reduced disposal volumes. Still, his two biggest clients, large oil producers, are cutting back, reducing the amount of water they’re giving him. He’s had to fire 22 of his 110 workers. “The name of the game today is survival,” Jackson says.
The disposal regulations will lead to further cuts in oil production, says Kim Hatfield, vice chairman of the Oklahoma Independent Petroleum Association, a trade group of oil and gas producers. “If you can’t dispose, you can’t produce,” he says. Another option is to treat and recycle the water, which Andrews and Jackson each estimate would cost from $2.50 to $3 a barrel. Hatfield says the reality is closer to $5. Given the state’s 10-to-1 ratio of water to oil production, that would mean oil prices need to be at least in the $50-a-barrel range for producers to cover their water treatment costs. “I probably review at least one project a week promising to turn bad water into good,” Hatfield says. “Can they do it? Absolutely. Can they do it economically? No.” �Matthew Philips
The bottom line In Oklahoma, regulations have reduced earthquakes—and squeezed profits at wastewater disposal companies. Netflix Amazon Prime