Beech â€“ Nut Nutrition Corporation is the second-largest
manufacturer of baby food in the United States and has long enjoyed
a reputation for quality and purity. The companyâ€™s Beech- Nut
applie juice was labeled and promoted as 100 percent fruit Juice
and touted as â€œgood nutrition that tastes good.â€ Unfortunately for
Beech-Nut, its reputation was tarnished in the mid -1980s when the
company was indicted for selling unadultarated apple juice â€“ that
is, juice made from ingredients different from those specified, or
from artificial ingredients.
Beech-Nut Nutrition Corp, began a division of Squibb Corp, but
was sold in 1973 to a group headed by Entrepreneur Frank Nicholas.
Nicholas and his partners boughts the company in a leveraged buyout
and were forced to operate Beech-Nut on a very limited budget.
Under Nicholasâ€™s leadership, the company began to experience
financial difficulties. Although Beech-Nut commanded 15 percent of
the baby food market, its main competitor, Gerber Products Co.,
held 70 percent. Beech â€“ Nut could not compete with Gerberâ€™s huge
marketing budget and found it difficult to capture any more of the
In 1977 Interjuice Trading Corporation offered to sell apple
juice concentrate at 20 percent below market price ro Beech-Nut.
Because apple juice products accounted for 30 percent of
Beech-Nutâ€™s sales, its executives beleived that buying the cheap
concentrate could save the troubled company millions of dollars a
year and improve its financial picture. So, Beech-Nut began buying
the concentrate, but its financial problems persisted. In 1979, the
company was sold to Nestle S.A.
Suspicious of the low-cost concentrate, Beech-Nut chemists began
testing the apple concentrate for purity. They soon determined that
the concentrate contained beet sugar ,apple flavor, caramel color,
and corn syrup, When two Beech-Nut employees were denied entry into
Interjuiceâ€™s concentrate-processing facilility, their suspicions
about the concentrateâ€™s purity increased. With this evidence, the
director of research and development at Beech-Nut, Jerome LiCari,
sent a memo to senior Beech-Nut executives, expressing his concerns
about the purity of the apple concentrate. Senior executives at
Beech-Nut, still under severe pressure to improve the companyâ€™s
financial position, failed to act on LiCariâ€™s information. When
LiCari took his evidence of adulteration to the chief operating
officer and president of the organization, the company threatened
to fire him, and he eventually resigned in frustration.
In 1982, the Processed Apple Institute began investigating
widespread rumors of apple juice adulturation in the industry.
Investigators warned Beech-Nut that Interjuiceâ€™s apple concentrate
was adulturated and asked the company to join with other
concentrate buyers in a lawsuit against Interjuice and other
producers of adulturated concentrate. Beech-Nut refused, missing an
opportunity to limit its liability.
Beech-Nut did cancel its contracts with Interjuice Trading
Company, but it continued to sell apple juice made from the
concentrate it had already purchased. Only after the Food and Drug
Administration and the New York State Agriculture Department
investigated and found that Beech-Nutâ€™s apple juice was indeed
adulturated did the company recall the product.
At first, government investigators assumed that Beach-Nut had
been a victim of unscrupulous dealers. But further investigation
revealed evidence that Beech-Nut was aware of the adulturation, the
most telling of which was Jerome LiCariâ€™s memo. In one instance,
when the company learned that the Food and Drug Administration was
about to seize a shipment of the adulturated apple juice, the
company destroyed it to avoid the negative publicity that might
have resulted from such a seziure.
In 1986, Beech-Nut and two top executives were indicted on 470
counts. The company pleaded guilty to 215 felony counts and wilful
violations of food and drug laws in 1987, and paid $2.2 million
fine. Charges against the top executives are still pending. In
addition, five suppliers of adulturated apple juice concentrate
were convicted and fined.
Beech-Nut tried to save money by using the low-cost concentrate,
even after the company learned that the concentrate was not 100
percent apple juice. Ironically, the ensuing investigation and
indictments cost the company more than $25 million in fines, legal
fees, and lost sales. Beech-Nutâ€™s share of the juice market dropped
20 percent, and the company sustained near-record losses. Several
years later, it still had not recovered from the damage caused by
the scandal, and Nestle sold Beech-Nut to Ralston Purina.
Discuss strategies for dealing with social
responsibility issues and identity the strategy that Beech-Nut
used. Which strategy would have been more effective?