Odwalla Inc and the E Coli Outbreak - Case Study Example

The purpose behind starting a fresh fruit juice company was simple; founders Steltenpohl, his wife, and friend Percy wanted to create a business withminimal start up costs to supplement their incomes while they pursued their other passions. The premise behind their product was simple; in their car, they distributed fresh juice products, made from a second-hand juicer, to provide local shops and restaurants an alternative to overly-processed and nutrient-deficient foods. Finally, the history of this backyard business is also simple; as the health and wellness industry began to grow in popularity, the demand for natural juice alternatives skyrocketed, turning Odwalla from a door-to-door business into a major contender in the food and beverage industry. In a mere 16 years, Odwalla went from a tiny, 3-person business, to a mega-corporation, employing hundreds of people, selling millions of its shares to the public, purchasing subsidiary companies to add to their growing influence and empire, and claiming $59 million in sales in 1996 (Custom Book for Ashton; Odwalla, 2010). Pricing their product at a premium level, Odwalla had the funds needed to create interesting products with catchy names and packaging, which they placed in uniquely decorated stand-alone refrigerators. However, the fall of Odwalla from public grace is not as simple to explain as its beginnings. Basing its product philosophy on the ideal of freshness and natural alternatives, Odwalla championed juice processing that did not pasteurize its products, as it was believed that pasteurization served to destroy a substantial amount of vitamins and nutrients in the juice. A self-proclaimed values-driven company, advertisement and marketing strove to construct Odwalla as the company that cares about nourishment, public health, safety, and wellness, eco-stability and sustainability, and social consciousness. As a means to reinforce this image, or identity branding, Odwalla participated and contributed to numerous community service and environmental initiatives, and they were even bestowed with the great honor of ‘Employee of the Year’ in 1993 (Custom book for Ashton). However, their brand and image would be severely challenged as positive links between E.Coli 0157:H7 and Odwalla juice products went public in 1996, after 61 people became ill from being infected with this powerful, and relatively new, strain of E.Coli. During the crises, the standard script was followed: first, Odwalla executives were informed on October 30th, 1996, by health officials from the state of Washington of the possible contamination of their products; second, Odwalla issued a public recall in less than 24 hours and, between October 31st and November 1st, distributing trucks collected Odwalla products from 4,600 retail establishments; and third, with the help of a Public Relations firm, Odwalla devised a plan to salvage their company from the wreckage of the food crisis. In many pro-and anti-Odwalla circles, the discussion does not revolve around what Odwalla did in the face of this crisis. After reviewing the case, the central issues revolve around culpability, reaction, and restitution: Odwalla and the FDA were both culpable, in varying degrees, for the outbreak and subsequent infection of 61 people; Odwalla’s reaction to the outbreak was borne from genuine concern for public safety, as well as strategic maneuvering to protect the interests of the company during and after the incident; and the restitution made, in terms of accepting criminal chargers, settling lawsuits from victims, and creating ‘learning’ and standards committees for the juice industry were all used as tactics to diffuse guilt from Odwalla while maintaining their holistic image through the rhetoric of the ‘company that cares’. In every crisis situation, there are two sides to the story. The factors that contributed to the E.Coli poisoning in the case are highly favorable to the Odwalla corporation; however, newspaper sources, FDA articles, and other criticisms about the outbreak paint a very different picture. In both assessments, E.Coli 0157:H7 is deemed a particularly dangerous bacterium found in the intestines of livestock, which can be transferred onto fruits and vegetables if they come in contact with the infected animals’ manure and not washed properly afterwards. However, the point of disagreement between the two accounts occurs during the discussion of precautions and standards. The case gives the impression that the E.Coli breakout in the Odwalla production plant could not be Odwalla’s fault because, firstly, they followed all the necessary FDA-approved procedures, and secondly, the nature of the bacterium, especially its ability to live in highly acidic environments, could not have been known by Odwalla, and therefore cannot be blamed for its outbreak. This reliance on unintentional ignorance was necessary to Odwalla’s reputation during and after the epidemic, as it was strategically used by Odwalla to redirect blame to other fresh juice producers, suppliers, and the FDA (Thomsen & Rawson, 1998; O’Neal, 1999). This unintentional ignorance plea was further bolstered by the company’s frequent reference to their above-standard procedures, which included rejecting floor apples and bins with any traces of dirt or debris in them, having a system of control agents who cautiously scrutinized the apples, and using a combination phosphoric acid and mechanical scrubbing cleansing system that had been proven extremely effective (Custom book for Ashton). As a result of their swift recall action, their image as the company that provides wellness through food and community service, and pleading ignorance to the possibility of this particular strain of E.Coli, public opinion swayed in favor of Odwalla, which perceived Odwalla as being yet another victim of the treacherous E.Coli virus. In contrast, a deeper look into the factors leading up to the incident, and their subsequent legal actions after the ordeal, portrays Odwalla as a company who, in the weeks following the outbreak, broke several of their cardinal rules in safety management (Thomsen & Rawson, 1998; Drew & Belluck, 1998; Henkel, 1996). Initially, FDA reports showed that Odwalla had followed protocol; however, by mid October, The Seattle Times released an article stating that the FDA had found the following discrepancies with Odwalla production policies: apples used were ground apples that could have come in contact with contaminated manure, the phosphoric wash solution used during the days of October 4th to 14th to decontaminate the apples contained less acid than safely prescribed, and on October 7th, the company did not complete a routine sanitation check on the apple pressing line (Thomsen & Rawson, 1998). In addition, during the ordeal, FDA’s office of Criminal Investigations interviewed several former Odwalla employees, suppliers, and security control managers; “their comments indicated that Odwalla had in the past had numerous deficiencies in its sanitation procedure. For example, accepted industry practice calls for use of a chlorine solution for washing and sanitizing fruit, but Odwalla… [used] phosphoric acid, which may not be effective as a fruit wash” (Henkel, 1999). Finally, although it was printed more than a year after the incident, The New York Times printed a scathing review on the deceptive maneuvering of Odwalla and the inefficiencies of the FDA as the real culprits in the 1996 outbreaks. Surprisingly, the ‘company that cares’ brushed away countless attempts by Ms. Velasquez, former quality control manager for Odwalla, to halt production on October 4th and October 7th on juices using highly decayed, worm-infested apples (Drew & Belluck, 1998). Although this evidence highly impacted criminal proceedings against Odwalla that found them guilty of 16 counts of misdemeanor in relation to the outbreak, this shocking evidence came too late to change public opinion on this matter. After reviewing the post-E.Coli incident reports on Odwalla’s finances, which include a multimillion dollar subsidiary with Coca Cola, it is obvious that the company escaped the crises relatively unscathed. Prior to discussing degrees of responsibility, it imperative to look at the decisions made by the Odwalla executives at the onset of this crisis, and the motives behind these decisions, in order to ascertain the true intentions of the company. In this incident, Odwalla had three choices in terms of dealing with the spoiled product. First, they could ignore the problem as they had no legal obligation to recall their product after receiving information from health officials, which would cause FDA to send a stern suggestion to the company to initiate a recall. Second, they could initiate a non-public recall, which would involve quietly removing suspect products from the shelves. Third, they could immediately initiate a public-recall. The first option is the least favorable of the three, especially in terms of reestablishing the company’s image in the aftermath of an outbreak. On the positive side, if the company had waited until definite microbial testing had been conducted, there may have been a chance that Odwalla was not responsible for the E.Coli poisonings, which would have saved the company millions of dollars. On the negative side, had they waited until testing showed that contamination did occur in an Odwalla factory, their public image would be destroyed beyond repair, as seen in the Jack in the Box hamburger case in 1993. If Odwalla had followed the second options, the negative outcome would be that, after finding E.Coli in their product and going public with the information, the public may view this act as willfully trying to keep important information from consumers, which would also serve to destroy Odwalla’s image of nourishment and nurturance. In addition, initially keeping the information quiet makes the strategy of the grand public apology moot, which was essential for rebuilding the brand’s image in the aftermath. However, on the positive side, had a private recall been completed first, there would be little discussion over Odwalla’s genuine concern for the public’s wellbeing. In the end, Odwalla choose the third option because it provided the company with the best plan to weather the E.Coli storm. On October 30th, 1996, less than 24 hours after being informed of the link between Odwalla juices and the E.Coli outbreak, founder Steltenpohl and CEO Williamson decided to initiate a public recall. As the decision went public, Steltenpohl made the following announcement: Stephen and I never batted an eyelash…. We both have kids. What if it had turned out that something was in the juice, and we left it on the shelf an extra two weeks, or week, or even two days, and some little kid gets sick? What are we doing? Why are we in business? We have a corporate culture based on values. Our mission is nourishment. We really never considered not recalling the product. Looking back, I suppose the recall was the biggest decision we made. At the time, it seemed the only possible choice (Custom book for Ashton). Although one must not doubt that Odwalla felt regret and remorse for their contribution to the outbreak, this statement is less about making amends and more about following a strategic formula that guarantees image restoration to companies who have lost face in the public market. In “Purifying a tainted corporate image”, Thomsen and Rawson (1998) argue that public apologies are simply a “symbolic speech formed in response to a need for image redemption, reconstruction, and maintenance”, which they refer to as part of social legitimacy theory. This theory posits the following: “an organization’s continued existence is congruent upon its ability to receive support or approval from shareholder audiences; [therefore], a primary motivation for corporate apology is re-legitimation, as the organization seeks to distance itself from the act or behaviors threatening sanction” (Hearit quoted in Thomsen and Rawson, 1998). In returning to the steps taken during the recall, it becomes painfully clear that Odwalla followed the public apology criteria to the letter, thus removing at least part of the sincerity of their choice to recall. In the apology strategy, Odwalla did employ corrective action and compensation; however, these actions were coupled with evasion and deflection tactics that served to draw specific guilt away from the company, and placed it on the general juice industry. Public announcements made by Odwalla continuously reinforced the notion of unintentional ignorance to the E.Coli strain; yet, later reports on the incident challenge this by quoting information from a physician and researcher who “insisted that it was widely known that e.coli 0157:H7 bacterium are ‘quite acid tolerant’” (Thomsen and Rawson, 1998). In addition, the FDA report stating that it had not found any findings of E.Coli in the Dinuba (Odwalla) processing plant provided Odwalla with the opportunity to deflect responsibility to the suppliers and to the ill-informed practice of unpasteurizing juice, which not only cast the entire fresh juice industry as guilty, but also served to eliminate much of Odwalla’s competition, as several of the smaller fresh juice companies went out of business during this time. Juice owners complained bitterly that Odwalla was not interested in public health and safety, but in protecting their bottom line by taking “the spotlight off Odwalla and [putting] it on the industry. Let’s not lose track of the real issue. Odwalla got animal poop in its apples and failed to wash it off,” fumed Odwalla’s juice competition (Thomsen & Rawson, 1998). In returning to varying degrees of responsibility, what was initially sympathy towards Odwalla’s seemingly unlucky involvement in the outbreak has turned to resentment over their strategic maneuvering, which involved the symbolic throwing of other companies under the bus. The very fact that Odwalla plead guilty to 16 misdemeanor charges, paid a total of $1.5 million in fines, and settled an untold number of private lawsuits in relation to this incident suggest that Odwalla understands their significant role in the outbreak. However, savvy public relations firms were hired, probably at no expense spared, to convince the public otherwise. Although accomplice may be a strong word for the role of government authorities in this matter, the reality is that the FDA failed Odwalla and the public during its inspection three months prior to the incident. In contamination cases, public health agencies have been continuously criticized for their lack of leadership in dealing with these issues, which stems from flaws within the industry’s regulations, and a misdirected objective that focuses on dealing with the aftermath of an outbreak rather than on prevention. It is public knowledge that the FDA inspected Odwalla a few months before contamination, “but government reports indicate its inspector focused on minor issues and missed signs that the company had failed to build the kind of safeguards that the FDA now contends it should have” (Drew & Belluck, 1998). In addition, the FDA inspection of the Dinuba facility on November 18th, 1996 stated, conclusively, that it found no evidence of bacterium anywhere in the plant, which benefited Odwalla while condemning the rest of the industry. The reality is that Odwalla had been positively linked to the bacteria, so it is only logical to question whether the inspection was carried out correctly. In the end, the role of government authorities in ensuring food and beverage standards must be reassessed in order to protect the public. After the ordeal, Odwalla made three changes to its policies. First, it decided to flash pasteurize its drink products; second, it started to use stickers to inform public as to the use of flash pasteurization; and third, it introduced the HACCP, “a comprehensive safety plan that involved pathogen control at multiple points in the juice production process” (Custom book for Ashton). However, in the aftermath of this outbreak, further issues about corporate social responsibility (CSR) and the option of publicly recalling tainted foods must be addressed. CSR, also known as corporate conscience and responsible business, is defined as a “built-in, self regulating mechanism whereby business would monitor and ensure its support to the law, ethnical standards, and international norms,” (Corporate Social Responsibility, 2010). After assessing the factors which led up to the outbreak, including the use of rotten apples and below-standard levels of phosphoric acid solutions, it must be argued, without doubt, that Odwalla’s voluntary recall decision was not an act of CSR, but rather a strategic move on behalf of a brilliant PR firm to deflect blame away from Odwalla and onto the industry in general. If legitimate CSR had existed, the advice of control experts who worked for Odwalla would not have been ignored in the weeks prior to the contamination. In the end, it important not to forget that, regardless of seemingly devious motives, Odwalla did attempt to correct their mistake through prompt recall actions, financial restitution, and production revisions that were established to guarantee customer safety. Although 1997 witnessed a significant drop in Odwalla stock, and the laying off of over 60 workers, the company did recover much of its profits in 1998 onwards, which can be attributed to the reinvention of Odwalla from the old company that cares, to the new repentant company that is proving it cares through its guarantee to continued learning about product quality and customer safety (Odwalla, 2010). Unlike the 1993 outbreak of E.Coli found in Jack in the Box hamburgers, which resulted in a slow recall reaction time by executives, the Odwalla example demonstrates the need to recall quickly and publicly in order to give the company a fighting chance of survival in the aftermath of the incident. Although Odwalla posted a lost of $11.3 million dollars in 1997, the strategic maneuvering served to save costs, protect investors, and salvage their corporate image (Odwalla, 2010). Therefore, it can only be assumed that, when in doubt, a company must not quibble over whether to recall, but how quickly the product can be recalled in the hopes of saving face. References Burrors, M. (1996, November 20). Opting for an early warning when E.Coli is suspected. The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9E03EFDD113AF933A15752C1A960958260 Drew, C. & Belluck, P. (1998, January 4). Deadly bacteria a new threat to fruit and produce in U.S. The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9C03E3DB1730F937A35752C0A96E958260 Henkel, J. (1996). Investigators’ reports: juice maker fined record amount for E.Coli tainted product. U.S. Food and Drug Association. Retrieved from http://web.archive.org/web/20080126220542/http:/www.fda.gov/fdac/departs/1999/199_irs.html Lawrence. (date?). Custom book for ashford: BUS250: Business & society. 463 – 473. McGraw-Hill Primis Custom Publishing ONeal, J. A. (1999). Food safety recalls: theres a right way. Defense Counsel Journal, 66(3), 424+. Retrieved November 29, 2010, from Questia database: http://www.questia.com/PM.qst?a=o&d=5037708795 Questions of pasteurization raised after E.Coli is traced to juice. (1996, November 4). The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9507EFD91438F937A35752C1A960958260&sec=&spon=&pagewanted=1 Thomsen, S. R., & Rawson, B. (1998). Purifying a tainted corporate image: Odwallas response to an E. Coli poisoning. Public Relations Quarterly, 43(3), 35+. Retrieved November 29, 2010, from Questia database: http://www.questia.com/PM.qst?a=o&d=5035384547 Wikipedia. (2010, November 21). Corporate Social Responsibility. Retrieved from http://en.wikipedia.org/wiki/Corporate_social_responsibility - - - - - - - (2010, September 15). Odwalla. Retrieved from http://en.wikipedia.org/wiki/Odwalla Read More