The Companies In Crisis

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Odwalla, a health-conscious juice company, experienced a significant event that had a major impact on its business. Founded by Greg Steltenpohl, Gerry Percy, and Bonnie Bassett, Odwalla started by manually extracting fresh orange juice using a $200 juicer. Over time, the company achieved rapid growth with a 30% annual increase in sales, eventually reaching nearly $90m in sales. They successfully established a strong brand presence and built a loyal customer base.

However, everything changed on October 30, 1996 when health officials in Washington state informed Odwalla about the connection between multiple cases of E. coli 0157:H7 and the consumption of their fresh apple juice. This link was officially confirmed on November 5th. Tragically, one child died and over 60 individuals fell ill in the Western United States and Canada after consuming Odwalla’s juice. As a result of this crisis, the company faced severe consequences as sales plummeted by 90% and Odwalla’s stock price dropped by 34%.

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Over 20 personal-injury lawsuits were filed by customers, which posed a serious threat to the company’s survival. In response, Odwalla took immediate action. Despite being uncertain about the severity of the issue when initially informed, CEO Stephen Williamson swiftly issued a recall of all products containing apple or carrot juice. This recall affected approximately 4,600 retail stores across seven states. Internal teams were promptly assembled and mobilized, successfully completing the recall within 48 hours. Notably, the company did not shirk its responsibility. During media interviews, Williamson expressed empathy and remorse for those affected and promptly pledged to cover all medical expenses incurred.

This strategy was well-received by both employees and customers, as effective communication played a crucial role in reassuring customers about the company’s proactive measures. Williamson regularly held company-wide conference calls to keep employees updated and address any concerns. This practice of quarterly calls was maintained even after the crisis. Furthermore, within a day, the company promptly launched an informative website, which garnered 20,000 visits within 48 hours.

The company used various means such as press interviews, television appearances, and direct advertising to spread accurate and timely information. The next priority was addressing the contamination problem. Initially, the company’s strategy involved using fresh unpasteurized juice for the best flavor. However, this approach was quickly acknowledged as incorrect. As a result, the company promptly adopted “flash pasteurization,” a method that removes E-coli effectively while maintaining the juice’s optimal taste.

Shortly after the outbreak, the company implemented what some experts deemed as the most extensive quality control and safety system in the fresh juice industry. On December 5, they reintroduced their apple juice. Williamson’s account of their journey is illuminating. Because of a lack of crisis management protocol, he relied on their vision statement and core values which include honesty, integrity, and sustainability. Their main focus was ensuring the safety and well-being of their juice consumers (Source: Fast Company). Despite this setback, Odwalla swiftly recovered and maintained a large portion of the trust and goodwill it had cultivated over time. Sales quickly rebounded.

The company successfully implemented strategies to achieve success amidst challenging times. Instead of laying off its delivery staff, Odwalla decided to retain them and assign them the responsibility of maintaining customer relationships. This approach not only earned employee loyalty but also preserved the company’s reputation with customers. Even the father of the girl who tragically died due to the crisis acknowledged their efforts by stating, “They did everything they could.” However, Odwalla faced consequences as they pleaded guilty to criminal charges for selling contaminated apple juice and were fined $1.5m, which remains the highest penalty ever imposed in a food industry case by the US Food and Drug Administration. Despite this, there are still critics who argue that Odwalla was not entirely innocent in this matter. Investigators believe that Odwalla had significant flaws in its safety procedures and poorly maintained citrus-processing equipment that facilitated the growth of harmful bacteria referred to as “black rotten crud.”

Before the outbreak, Odwalla had received letters from customers who had become violently ill but had not addressed the issue. They resisted industry safety standards and refused to pasteurize their juices, claiming it would alter the taste and was unnecessary. However, the head of quality assurance, Dave Stevenson, was aware of the dangers and suggested using chlorine rinse as a backup solution. Senior executives overruled him due to concerns about an aftertaste from chlorine. Instead, they chose to rely on acid wash, even though the chemical supplier had warned that it only killed E. coli in 8 percent of tests and should not be used without chlorine. In conclusion, those who interacted with Odwalla during the crisis felt that ordinary people within the company were devastated by the fact that their actions led to poisoning and loss of life.

The company’s values emphasized nourishing people, and during the crisis, it was the company’s commitment to honesty, straightforwardness, and accountability that helped it navigate through. While there are critics who question the company’s integrity, even they admit that Odwalla’s crisis management serves as a benchmark that few can match. The following year, Odwalla was recognized as the “Best Brand Name in the Bay Area” by San Francisco Magazine, indicating that its reputation had recovered. (source: Odwalla interprets the recent E. coli O157:H7 incidents as a call to action for the entire fresh apple juice industry.

Stephen Williamson, CEO of Odwalla, states that simply adhering to industry standards for good manufacturing practices no longer ensures the absence of E. coli O157:H7 in fresh apple juice. Even thorough washing of apples cannot guarantee safety. Additionally, Dr. Michael Doyle from the University of Georgia notes that testing the final product does not guarantee the absence of harmful pathogens like E. coli O157:H7.

In response to these concerns, Odwalla plans to implement heat treatment methods for their fresh apple juice in order to kill bacteria without compromising its nutritional content and integrity. This approach aligns with Odwalla’s goal of creating nourishing beverages and their commitment to optimal nutrition, as stated by Greg Steltenpohl, the chairman.

We are currently conducting research and will make a decision based on the information gathered. Once we have reached a conclusion, we will share our findings with both the industry and the public. In the meantime, our company has halted the production of all fresh apple juice and urged other producers to do the same.

Odwalla Inc., an American food product company specializing in fruit juice, smoothies, and food bars, was established in Santa Cruz, California in 1980. It is now headquartered in Half Moon Bay, California after its incorporation in 1985 fueled significant growth expanding distribution across North America. Odwalla became a publicly traded company in 1993.

In 1996, however, Odwalla faced a decline when contamination of its apple juice caused a fatal outbreak of E. coli O157:H7 bacteria. Consequently, Odwalla recalled their juices resulting in a drastic sales decline of ninety percent. Despite this setback, the company gradually recovered and regained profitability within a few years.

In 2001, The Coca-Cola Company acquired Odwalla for US$181 million making it a wholly owned subsidiary.

Odwalla, a company headquartered in Santa Cruz, California, offers a range of products including juices, smoothies, soy milk, bottled water, organic beverages, and energy bars called “food bars”. Originally, Odwalla sold unpasteurized juices to maintain their flavor. However, after an E. coli outbreak incident occurred, they introduced flash pasteurization and other sanitation techniques. The founders of the company – Greg Steltenpohl, Gerry Percy, and Bonnie Bassett – established Odwalla in 1980 after being inspired by a guidebook. They initially began hand juicing oranges with a secondhand juicer in a shed before eventually setting up their production facility in Dinuba, California.

Steltenpohl’s backyard was the starting point for Odwalla. They began by selling their product from the back of a Volkswagen van to local restaurants, promoting their brand with slogans like “soil to soul, people to planet and nourishing the body whole”. Their start-up name, “Odwalla”, was inspired by a character named “Odwalla” from the song-poem “Illistrum”, a favorite of the founders. This song-poem was composed by Roscoe Mitchell and performed by the Art Ensemble of Chicago jazz group, of which Mitchell was a member. Steltenpohl, Percy, and Bassett connected this to their products, which they believed helped people break free from over-processed foods that dominate today’s market.

Prior to the 1996 E. coli outbreak, there were safety issues at the Odwalla plant. These problems stemmed from not pasteurizing their juice. In 1995, tests revealed the presence of low levels of Listeria monocytogenes at the Odwalla factory. This pathogen is harmful to pregnant women.

After spending several million dollars on safety upgrades, Odwalla reduced bacteria levels at their plant to relatively low levels. The company’s technical services director, Dave Stevenson, suggested adding a chlorine rinse to prevent bacteria on the skin of processed fruit. However, this idea was dismissed by senior vice president Chip Bettle, who was concerned about the impact on the fruit’s flavor. In a letter to The New York Times, Christopher C. Gallagher, Odwalla’s director of communications, stated that the company continually improved their manufacturing process and had relatively low bacteria levels in their apple juice.

In October 1996, health officials in Washington state notified Odwalla that an outbreak of E. Coli O157:H7 was linked to a batch of their fresh apple juice produced in October.

On November 5th, it was confirmed that the presence of this information may have been due to using spoiled fruit, including highly decayed fruit. Another potential cause of contamination was fallen apples, also known as “grounders,” which had come into contact with animal feces and were not adequately cleaned. An inspection carried out on November 15th yielded no signs of E. coli contamination within the facility, indicating that the bacteria originated outside the factory. This outbreak was unexpected since the plant had undergone an FDA inspection three months earlier and Odwalla supervisors were unaware that E. coli bacteria could thrive in acidic, chilled apple juice.

Based on a recommendation from the FDA, Odwalla’s CEO Stephen Williamson voluntarily recalled 13 products containing apple juice from approximately 4,600 stores on October 30th. The following day, carrot and vegetable juices processed on the same production line were also recalled as a precautionary measure. Implementing the recall process incurred a cost of $6 million and took roughly 48 hours to complete, involving nearly 200 trucks dispatched for collecting the recalled products.

Odwalla’s stock prices and sales declined after an outbreak caused by the consumption of unpasteurized fruit juices. This outbreak resulted in severe health consequences for consumers, including the death of a 16-month-old child and illness in at least 66 individuals. Furthermore, fourteen children developed a serious kidney and blood disorder that could have long-term complications. As a result, the company suffered a loss of $11.3 million and had to lay off 60 employees.

In response to consumer inquiries about the recall, Odwalla launched a website and call center. They claimed that pasteurization has negative effects on the flavor and nutrient content of fruit juice; however, their use of sanitizing chemicals for fruit cleaning proved to be harmful.

Odwalla was charged with 16 criminal charges for distributing juice that was not pasteurized and had safety flaws, leading to contamination. One contractor warned about equipment that was poorly maintained and causing bacteria to grow. Odwalla pleaded guilty and received a $1.5 million fine, the largest ever in a food poisoning case in the US. However, they were allowed by the judge to donate $250,000 of the fine towards research on preventing food-borne illnesses.

Besides settling around twelve lawsuits from affected families and paying approximately $12 million, Odwalla took measures to regain consumer trust and increase sales after recalling their products. They reformulated five products by removing apple juice from their ingredients and implemented flash pasteurization as well as other safety precautions during manufacturing.

The modified juices returned to store shelves on December 5, 1996.

After the E. coli outbreak, Odwalla made improvements to enhance the safety of its production processes. Prior to entering the factory, fruits undergo a series of steps including washing, sorting, and sanitization. Once inside the plant, apples, carrots, and citrus fruits are separated and washed again. The fruit is then pressed to extract juice, subjected to flash pasteurization, and finally bottled. A quality testing is conducted on a sample from each batch, and if it meets the standards, the entire batch is shipped to distribution centers throughout the United States in refrigerated trucks. Odwalla juice has a shorter shelf life compared to other beverages, necessitating refrigeration. However, with the implementation of flash pasteurization in 1996 and the introduction of a new plastic bottle in 2001, the shelf life has significantly increased. Typically, Odwalla products are displayed in dedicated Odwalla-brand sections at grocery and convenience stores rather than being mixed with other products.

Flash pasteurization, also known as “High Temperature Short Time” processing, is a heat pasteurization technique used for preserving perishable beverages such as fruit and vegetable juices, beer, and some dairy products.

Flash pasteurization, a process used for pasteurizing bulk products like keg beer, milk, and kosher wines, maintains color and flavor better than other pasteurization methods. It is done before filling into containers to eliminate spoilage microorganisms and create safer products with an extended shelf life. Flash pasteurization requires the use of sterile fill technology, similar to aseptic processing, to prevent post-pasteurization contamination. However, if hygiene standards are not strictly enforced, there is a risk of contamination. Unlike North America, flash pasteurization is more commonly utilized in Europe and Asia. Fruit juices are a popular application for this process, with Tropicana Products having implemented flash pasteurization since the 1950s.

In 1996, the juice company Odwalla made the decision to switch from non-pasteurized juices to flash-pasteurized juices. This change occurred after several children fell ill and one died due to consuming tainted unpasteurized apple juice contaminated with E. coli O157:H7. The death of Anna Gimmestad was a pivotal moment for Odwalla, as her kidneys failed, her brain became blocked by dead blood cells, her heart became unstable, and she ultimately passed away after consuming contaminated apple juice. Investigations later revealed that Odwalla had significant flaws in its safety procedures, and their citrus-processing equipment was poorly maintained, allowing bacteria to breed in unclean conditions, contaminating every drop of juice. Prior to the outbreak, Odwalla had received complaints from customers who had become seriously ill, but had failed to address the issue.

Despite industry safety standards, Odwalla did not pasteurize its juices, claiming that it affected taste and was unnecessary. However, the previous year, Dave Stevenson, head of quality assurance, suggested using chlorine rinse as a precaution against bad fruit, despite being aware of the dangers. This idea was rejected by senior executives who were concerned that chlorine would leave an aftertaste. Instead, they chose to rely on acid wash, even though Odwalla’s chemical supplier had warned that the wash only killed E. coli in 8 percent of tests and should not be used without chlorine. By the summer of 1996, production demands took precedence over safety concerns and safety managers were mistreated.

According to reports, production managers at Odwalla, with the encouragement of management, ignored warnings from an inspector about using a batch of apples that were too rotten. This batch of apples had decayed ones, a worm, and lacked proper precautions against contaminants. Unfortunately, this batch turned out to be deadly. Odwalla has publicly accepted “responsibility” for the poisonings, but still tries to portray itself as a victim. Founder Steltenpohl explained that they did not test for E. coli because they believed there was no evidence of it at that acid level. In essence, Odwalla admitted guilt for ignorance and failing to foresee the health dangers associated with unpasteurized juice. Regarding the crisis management, it is unlikely that Odwalla could have done anything differently. They handled the situation as well as they could, considering the circumstances. Being more transparent could have severely impacted their reputation. Despite past issues, Odwalla seems to be improving its food handling standards.

The possibility of salvaging its brand reputation and resuming growth is uncertain for Odwalla. Other businesses can potentially learn from this disaster. Despite promoting socially responsible values, Odwalla appeared to be operating without control. Production deadlines put pressure on managers, causing them to disregard good judgment and manufacturing practices. Employees who raised concerns were silenced through intimidation. This outcome is the result of a business having a closed culture with no established system of corporate oversight.

Odwalla lacked internal oversight mechanisms such as social reviews, ethical hotlines, and ombudsmen to control operational excesses. Its board consisted of the founder’s business friends, disregarding the proven benefits of having independent and strong boards for healthier corporate cultures and increased profitability. In hindsight, accountability comes too late for Odwalla’s declining financial performance. Management’s willingness to prioritize the company’s broader interests over personal vanity reveals a lot. Even with ethical oversight, it cannot compensate for a breach in personal ethics. Mistakes are inevitable in life, but one’s character is defined by how they handle these mistakes. Ultimately, there is no separate “business ethics,” only the ethics of individual businessmen and women. This is why the Odwalla saga is deeply troubling. [source:]

Could the oil giant learn from the makers of Mango Tango? If you’re old enough, you might remember Odwalla’s rapid success in the mid-1990s. Sales grew by 30% annually, and the company built a strong brand with loyal customers. However, everything changed in October 1996 when health officials in Washington state found a connection between several E. coli cases and Odwalla’s fresh apple juice. This crisis resulted in the death of one child, more than 60 illnesses, a 90% drop in sales, and a 34% decline in Odwalla’s stock price. The company faced lawsuits and damage to its brand, leaving it in a hopeless situation.

Despite the E. coli incident, the company was able to survive thanks to a swift and thoughtful response to the crisis. Although the severity of the incident cannot be compared to the catastrophic Deep Horizon oil spill, similarities can be drawn between the threats faced by both companies and their respective responses. Odwalla, now known for its successful initiatives such as the “Plant A Tree Program,” has managed to bounce back in ways that BP has been unable to. Mallen Baker’s study on Odwalla’s crisis management in his Corporate Social Responsibility case highlights that Odwalla took immediate action.

Despite initially being uncertain about the link, Odwalla’s CEO Stephen Williamson made the decision to recall all products that contained apple or carrot juice. Williamson stated, “We did not have a crisis-management procedure in place, so I referred to our vision statement and core values of honesty, integrity, and sustainability. Our top priority was ensuring the safety and well-being of our juice consumers.” Shortly after the “outbreak,” the company launched a website (its first) to provide an explanation, which garnered 20,000 hits within 48 hours. Baker notes that the next step was addressing the contamination issue.

The company’s original approach was based on using fresh unpasteurized juice because they believed that unaltered juice had the best flavor. However, they quickly realized that this was a mistake and decided to implement a process called “flash pasteurization” to ensure the destruction of E-coli while preserving the desired taste of the juice. Experts praised Odwalla’s response, describing it as the most comprehensive quality control and safety system in the fresh juice industry. Despite having to pay a record-breaking fine of $1 million imposed by the US Food and Drug Administration, Odwalla recovered rapidly. The following year, San Francisco Magazine voted Odwalla as the “Best Brand Name in the Bay Area,” proving that their reputation had survived the crisis. The company’s recent Plant a Tree program exemplifies how their brand identity, which is built on core principles as mentioned by Williamson, aligns with their corporate operations.

Odwalla’s website invites visitors to choose where the company will plant a tree on their behalf. The program aims to plant 100,000 trees, with Odwalla covering the cost. The selection of states/state parks will be based on the vote tally, which visitors can influence by sharing the message on social media. Users can join forces through a Facebook Microforest app to plant a virtual Microforest. By posting about their participation in tree-planting on Twitter, they can encourage their followers to do the same. Odwalla’s goal is to allow fans and participants to protect the world from ordinary in a natural way.

Amid an ongoing investigation by a Fresno grand jury into an E. coli outbreak in October 1996 that resulted in the death of a child from Colorado, Odwalla Inc. faces another lawsuit filed against them on Monday.

Seattle attorney William Marler filed a lawsuit against the juice maker in King County Superior Court in Seattle on behalf of 4 1/2-year-old Katherine Wright. Wright allegedly consumed apple juice contaminated with E. coli 0157:H7. This lawsuit is one of many resulting from an E. coli outbreak that caused the death of a 16-month-old girl in Colorado and harmed at least 60 individuals. Odwalla’s 1997 annual report states that 17 personal-injury suits have been filed in relation to this incident, with seven already settled. Odwalla is located in Half Moon Bay near San Francisco, with their plant in Dinuba. Katherine Wright is Marler’s fifth young client representing Odwalla consumers. The trials for these lawsuits may begin in the spring. The complaint asserts that the girl consumed Odwalla apple juice provided by her day-care provider between October 21 and October 28, 1996. On October 7, 1996, she fell ill and experienced severe stomach pain, cramps, vomiting, and diarrhea.

Two days after recovering, she went back to day care and drank Odwalla again. She got sick again that night and was taken to her pediatrician and then to a hospital the next day. The day-care provider informed them that unpasteurized Odwalla juice was linked to E. coli. According to the lawsuit, Katherine continued to receive ongoing care and it is alleged that Odwalla knew about the risks associated with unpasteurized apple juice. At the time, Odwalla produced its unpasteurized products at a 65,000-square-foot production plant in the Central Valley. However, after an investigation by the U.S. Food and Drug Administration, no evidence of E. coli was found at the plant. Odwalla was criticized for not testing their products for the bacteria.

Odwalla has implemented a process known as “flash-pasteurization” to eliminate harmful bacteria. In a court brief filed in another case, lawyer Marler claimed that Odwalla had been informed about issues with its unpasteurized juices over a year before the E. coli outbreak. This brief was submitted in response to Starbucks Corp.’s motion to be removed as a defendant in a lawsuit filed by Marler on behalf of a child who consumed apple juice at a Starbucks location. The child required over two weeks of kidney dialysis. Marler stated that both Starbucks and Odwalla were aware of individuals falling ill and discovering foreign objects, such as broken glass, insects, and even a nail, in their products months before the E. coli outbreak. The document further revealed that a Starbucks employee had written to their headquarters describing becoming “extremely ill within a few hours” after consuming Odwalla juice.

The letter to Odwalla informed them of their frequent consultations with the other company regarding issues with their juice. Odwalla spokesman Chris Gallagher criticized claims made by Marler, stating that they were scientifically unfounded and careless. He also stated that the implications of negligence were completely false. Gallagher mentioned that Odwalla had taken responsibility, paid medical bills, and made efforts to prevent a recurrence of the issue. Despite losing about $12 million in the last fiscal year, Odwalla reported that sales have almost returned to pre-recall levels. Gallagher stated that 75,000 people continue to purchase Odwalla products daily, and that the company’s expensive efforts to rebuild have been due to loyal consumers. The contamination and subsequent recall of Odwalla’s apple juice products are currently being investigated by a grand jury in Fresno.

Odwalla officials have stated in government documents that the Fresno grand jury is investigating events that took place in 1996 and earlier, including the E. coli incident. The New York Times reported that interviews with former Odwalla managers and company documents indicate that before the outbreak, Odwalla had loosened its standards on accepting imperfect fruit. However, Odwalla Inc. defended its quality-control practices and dismissed the Times article’s suggestion that better fruit-handling practices, stricter adherence to good manufacturing practices, or different quality-control procedures could have prevented the outbreak as “unfounded speculation.” The company stated that it concluded, after the outbreak and extensive consultation with outside experts, that only pasteurization would guarantee protection against E. coli. Additionally, Odwalla disagreed with allegations that safety was neglected for growth, as the company’s revenues grew from $9 million in 1991 to $59 million in 1996.

The statement emphasized that Odwalla had continuously improved its manufacturing process before the E. coli outbreak. The Fresno grand jury is investigating whether Odwalla relaxed their standards of accepting damaged fruit and neglected to take special precautions when processing the fruit. The jury is also examining whether production managers ignored warnings from a company inspector about using rotten apples without special precautions. Company documents revealed that in the three weeks prior to the incident, some apple loads contained 25 to 30 percent defective fruit. Odwalla Inc. defended their quality-control practices, stating that their primary indicator of overall quality was bacterial level readings, referred to as total plate counts (TPC’s). The statement highlighted that during the period leading up to the E. coli incident, the TPC’s in their apple juice were relatively low and decreasing.

Despite previous concerns about the quality of fruit used in our sorting and culling process, the test results indicate that the juice produced is of high quality. However, recent details have highlighted the California growers responsible for the contaminated batch and how the apples were handled at the Odwalla plant. Kenton Kidd, president of the California Apple Commission, has cautioned against using apples referred to as “drops” or “grounders,” which are apples picked up from the ground. Following the outbreak, the apple commission issued a warning regarding the use of “drops,” according to Kidd.

Kidd stated that he is not aware of anyone in his industry who sells dropped apples. According to Kidd, investigators discovered no E. coli at the Valley orchards they visited. “As far as I know, there was no issue at the growing level,” he mentioned. Although Kidd did not directly blame Odwalla during an interview on Monday, he did comment, “The contamination from E. coli could be due to workers in the plant not practicing proper hand hygiene. There are numerous possibilities.” Odwalla is using the internet to control the damage caused.

Odwalla has recently introduced a website on the Internet to manage inquiries and worries regarding the voluntary recall of certain well-liked juices, with the intent of addressing customer concerns.

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