Beech-Nut Nutrition Corp.

Case Study Analysis &

Solution
ALLPPT.com _ Free PowerPoint Templates, Diagrams and Charts
Beech-Nut Nutrition Corp.

• Beechnut is a lesson to be learned for all Leaders which says A stitch in

time saves nine.
• As soon as they found or suspected the case of adulteration, they tried t
o cover it and taken the risk of not withdrawing the product from the mar
ket. They had an estimated loss of recalling all the cases of Juice at app
roximately 5 Million Dollars.
• But by covering the same from FDA, not withdrawing the products by ex
tending sales the loss made including all legal commitment was 25 Milli
on Dollars
• In Addition, they had to sell of the company, they could not regain the br
and name once lost or heavy advertisement expenses has been met.
• This explicitly says that, for smaller losses ignoring ethics is even more
dangerous and it can even spoil the company.
Andersons’ job was at stake??

• Andersons’ job was not at stake. Nestle, while appointing Mr. Anderson w
as impressed on his qualification and experience working with the brand.
• His task was to make Beech nut a profitable organisation with a better ca
sh flow, which has been struggling with cash flows for the last few years.
• Nestle has given enough commitment to Mr. Anderson on the safety of hi
s job, it is been said that even though he was unable to uplift Beechnut to
said profitability, he will be safeguarded by giving another role in Nestle It
self.
Was this case regular or isolated?

• The case of adulterated juice was not isolated. Beech-Nut had faced prob
lems with adulterated orange-juice in the past.
• In late 1978-early 79, there were concerns regarding the authenticity of th
e natural juice in the industry.
• 1978: The year after Universal was appointed as the supplier, there were
concerns regarding authenticity. It was in response to this that Beech-Nut
had made Universal sign a contract to compensate the former for any los
ses arising out of poor quality raw material.
• 1979: SIRA testing at California suggested that the juice was adulterated
with corn or cane sugar. The concentrate was almost pure sugar syrup.
Was this case regular or isolated?

• August 1981: Memo by Norm Haskins, Head of R&D. Circumstantial evid

ence of adulterated concentrates from Universal:
• Very low amino nitrogen levels
• Riboflavin was 10-100 times lower than that found in other concen
trates.
• SIRA tests also confirmed beet sugar
• Fructose/glucose ratios from concentrate non-standard
• Concentrate’s sugar profile closely resembled invert beet syrup.
• Contained 2 post-sucrose unknowns which had previously not bee
n recorded in previous tests or found in other apple juice samples.
• Pricing: In 1977, Universal’s products only marginally cheaper, but
in 1982, it was 25% cheaper.
In short before June 28th 1982, at least one clear case of an external en
tity (Nestle) giving an unsolicited warning regarding the authenticity of
the products.
What were Anderson’s immediate concerns?

• Whether the company could continue to sell the Apple juice products mad
e from the allegedly adulterated concentrates supplied by Universal.
• Whether they should join the trade association’s lawsuit against Universal
.
• There were 700,000 cases of finished products containing apple juice con
centrate. This amounted to about 8 weeks’ of finished product. And the co
st of destroying each case was $5 i.e. a total of $3.5 Million.
• Anderson needs to avert a possible impact of negative publicity on the Be
ech-nut brand.
• In the background, Anderson is under pressure to turn Beech-nut into a pr
ofit making entity, after several years of poor performance. Moreover, the
parent company, Nestle was only interested in investing in companies th
at are growing.
Arguments for Recall of Juice

• Being a trusted brand labelled 100% juice in its packages, it’s unfair/unethical, sp
ecially
• Babies and Kids consume its food products.
• Even after few tests. It was not fully known on the details of adulteration and its e
xact contents. A company can’t take such a risk of feeding babies with unknown c
ontents, it can even keep their life’s at stake.
• It will increase the brand value of Beechnut if it recalls products ethically and it wil
l give a positive message to the society.
Arguments against Recall

• At the Maximum adulterants found was corn, sugar syrup and cane sugar concentrat
e, these were not life-threatening ingredients.
• A recall can create havoc in the market and also it can affect the bottom line of an alr
eady loss-making company.
• Bad reputation to the brand (making people feel that 100% pure can have problems t
oo).
• Losing the trust of retailers unless they are compensated on their opportunity cost.
• Can also create a fear from public as it is been fed to babies too
Violations

Federal Food, Drug, and Cosmetic Act

 Abbreviated as FFDCA, FDCA, or FD&C, passed by Congress in 1938
 Gives authority to the U.S. Food and Drug Administration (FDA) to oversee the safet
y of food, drugs, medical devices, and cosmetics.
 Beech-nut violated this by selling artificially flavored sugar water as apple juice.

The Fair Trading Act

Protects customers from unfair conduct classified as :
 Misleading or deceptive conduct in relation to goods, services or employme
nt
 Unsubstantial representation
 False representations
 Unfair practices such as Bait advertising, referral selling and trading stamp s
chemes.
All necessary information should be on the label and customers have right to know
what they are buying.
Ethical issues

  Beech-Nut began shipping the cases out of the country clandestinely and stall
ed the FDA investigators who were asking samples of the suspect product.
 Sold millions of bottles of ''apple juice‘’ which contain little or no apple juice at all
– advertising to be pure apple juice.
 The consumers of this bogus product were babies.
Implication on the Brand

• Beech-Nut struggled to repair its brand image after the company’s guilty plea.
• The market share fell about 20% and suffered near-record losses for 1987. Advertisi
ng campaigns had to be launched to rebuild lost trust.
• 25 Million dollars of legal cost ensued and there was further 15 million dollar loss on
sales of 130 million. It then leads to acquisition by Ralston Purina Co. but still the co
mpany was not profitable for several years.
• The sale price of company was at a bargain and brand damage to its reputation bec
ame a problem. Similar problems which stuck Beech-Nut including voluntary recall of
11,000 cases of baby-food and an infant girl dying while eating a contaminated jar of
beech-nut bananas as a result of tampered jars.
• Beech-nut had to come above all these brand image hits by re-enforcement of faith t
o provide hungry babies 500,000 jars of baby food.
Thank you