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Assignment ii
The Odwalla Juice Company Crisis

alen jose thomas

Odwalla Inc.
Odwalla Juice Company was started in 1986 by a and its sales grew exponentially. By the mid-1990s,
group of health-conscious friends living together in Odwalla was selling nearly $90 million worth of juice
the San Francisco Bay area. Starting with a hand juic- per year.
er and organically grown fruit, the owners produced
fresh juice in the back shed of one of the founders Soil To Soul
homes and sold their juice by delivering it daily to
area restaurants. Perhaps the most essential part of Odwallas founders were at the forefront of the
their business model was their claim that their juice corporate social responsibility movement that can
was fresh from the fruit and without the pasteuriza- be traced to the mid-1980s. Indeed, as one of their
tion process that was used by other juice producers. founders was fond of saying, they embraced a Zen-
In fact, Odwalla was one of the pioneers of a wid- like philosophy in all of their dealings, where com-
er movement in the United States favouring more munity was an important factor in the equation.
organic food consumption. Odwallas founders held The company employed a soil to soul metaphor to
the belief that pasteurization, the process of heating describe its commitment to using fresh organic fruit
the juice to a certain temperature for purposes of (soil) to nurture the body whole (soul) of its con-
killing any bacteria that had developed during grow- sumer. Odwallas reputation as a socially responsible,
ing, picking, or processing, affected the taste of the growth-oriented company flourished as they received
juice and was unnecessary. Instead, Odwalla used an awards from Business Ethics magazine in 1995 for
acid-based rinsing process to kill bacteria. Producing Outstanding Corporate Environmentalism and from
fresh organic fruit juice as a central component of its Inc. magazine in 1996 as Employer of the Year.
business model, Odwalla developed a loyal following
of consumers that desired the freshest juice possible
Crisis on
The Coast
In early October 1996, an outbreak of E. coli2 struck as 60 other consumers were hospitalized with E. coli
several West Coast states, including California and related illnesses in a period of just one month. At
Washington, and reached into western Canada as the height of the outbreak, government investigators
well. E. coli is a potentially deadly bacterium that de- confirmed that the Odwalla products were in fact the
velops as a result of contamination of food products source of the E. coli contamination. Odwalla imple-
or processing. On October 30, 1996, health officials mented a media strategy including daily statements
in the state of Washington notified Odwalla that they to the press, internal conference calls where manag-
were investigating a possible link between the E. coli ers were informed of updates, and setting up a Web
outbreak and Odwalla apple and carrot juice. After site to disseminate information. Odwalla publicly
learning of the potential link, Odwallas executive promised to pay for all medical expenses of injured
management team had an emergency meeting to dis- consumers and to re-evaluate its manufacturing pro-
cuss their response. Although there was no demon- cess immediately.
strable link at this point, Odwallas executive man-
agement team decided to mobilize a voluntary recall
of products containing apple or carrot products.
This was a major financial commitment involving
the removal of Odwalla products from nearly 4,600
retail outlets in seven states in just 48 hours. Odwalla
claimed that it spent $6.5 million on the recall effort.
Odwallas corporate crisis took a tragic turn when
in November 1996, a 16-month-old child died from
E. coli after drinking Odwalla apple juice. As many
Fall out
Odwallas brand name was decimated by the crisis. blame the company for her death and that Odwalla
Immediately after the outbreak, Odwallas stock price had done everything they could have under the cir-
dropped 34 percent and sales of its juice products cumstances. However, during the discovery process
fell 90 percent in one month. The outbreak triggered in one of the lawsuits filed by an injured consumer,
numerous investigations by federal and state author- it was revealed that Odwalla had more knowledge of
ities. Customers filed negligence lawsuits claiming a potential health hazard prior to the outbreak than
that Odwalla had known that the acid-rinse method had been previously reported. A report surfaced that
was ineffective and that scientific studies had shown indicated that the U.S. Army had rejected Odwallas
that the method was effective in killing bacteria that proposal to sell their juice in U.S. Army commissar-
caused E. coli only 8 percent of the time. After it had ies after an Army inspector found uncommonly high
been shown that pasteurization was a widely-used levels of bacteria in a sample and concluded that the
practice in the industry (although not required by risk of contamination was extraordinarily high. The
federal or state laws) and that Odwalla management Army rejection had taken place four months prior
had ignored its own head of quality assurances warn- to the E. coli outbreak. Responding to the Armys
ing about potential contamination sources in the findings, Odwallas head of quality assurance recom-
factory, the Food and Drug Administration levied a mended that the company add an additional layer
$1.5 million fine, the largest in the agencys history at of contamination protection by employing a chlo-
that time. rine-based washing system for the fruit. His recom-
Immediately after the recall, Odwalla was widely mendations were rejected, however, due to manage-
praised by the media and commentators for its han- ments concern that the chlorine wash would affect
dling of the crisis. The company decided that, despite the taste of the juice. After the Army disclosures were
mounting financial pressures from lawsuits and fines, made public, Odwalla settled several lawsuits de-
no employees would be laid off and that they would spite its earlier resistance to a nonlitigation solution.
continue to donate to community charities. Odwalla Soon after the settlement, The Seattle Times wrote a
hired a public relations firm that constructed a stan- scathing editorial about Odwallas course of action.
dard explanation that the contamination was unfore- The editorial predicted that Odwalla would forever
seeable and that all appropriate safety measures were be known as the careless provider of poisoned fruit
in place. juice. Odwallas stock was now trading at its lowest
The public largely believed Odwallas explanations level ever, and the company was incurring massive
because its reputation for social responsibility was debt to cover litigation costs and technology up-
iron-clad in its consumers minds. Even the parents grades.
of the child whose E. coli-related death had ignit-
ed the crisis were quoted as saying that they didnt
Odwalla today
After the fallout from the E. coli crisis, Odwalla Fresh Samantha in 2000, Odwalla ended up as part
invested heavily in quality assurance technology of a large acquisition by the Minute Maid division of
and eventually became an innovator of a flash- pas- The Coca-Cola Company in October 2001. Today,
teurization process that killed all bacteria, but kept Odwalla remains a subsidiary of Coca-Cola and has
the fresh taste and quality of the juice intact. Just over 650 employees. Their management continues to
two years after the crisis began, the readers of San focus on its soil to soul model and now feature 25
Francisco Magazine voted Odwalla Best Brand. organic products within eight product lines including
Although the company looked poised for a come- smoothies, soy shakes, and food bars.
back, it had accrued substantial debt and was forced
to begin exploring the possibility of merger oppor-
tunities. After a merger with East Coast juice maker

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