CASE STUDY 1

Odwalla, Inc. (A)

Stephen Williamson's worst nightmares were about to come true. As chief executive officer of Odwalla, Incorporated, he was at the helm of a company worth nearly $400 million whose products in the premium juice market were widely regarded by customers and competitors alike for quality and freshness. The company's reputation was solid throughout the Pacific Northwest, but the press release on his desk was filled with nothing but bad news.

Williamson had just met with his corporate communication director, reviewed the crisis communication plan, and was now applying the last few corrections to a press release before faxing it to PR Newswire. The date was October 30, 1996, and less than an hour ago, the SeattleKing County Department of Public Health and the Washington State Department of Health had reported an outbreak of E. coli (0157-H7) infections that were "epidemiologically" associated with drinking Odwalla apple juices and mixes. More specifically, the public health physicians had uncovered a direct link between people who had the infection and those who had consumed Odwalla's product. Some 66 people had become sick from drinking Odwalla juices in recent weeks.

E. coli Bacteria

Escherichia coli is a species of microscopic bacteria named for the German biologist who discovered it during the early 1900s. Virtually all large animals, including humans, benignly host some form of the bacterium in their large intestinal tracts. But a particularly virulent form of the organism, known specifically as 0157-H7, can sicken and kill those whose immune systems may be compromised.

E. coli 0157-H7 can grow quickly in uncooked food products, including meat, cheeses, fruit, dairy products, and juices. The bacteria may be completely destroyed, however, by heat or radiation. If meats are cooked to a temperature of 160 degrees Fahrenheit, or if juices and other potable liquids are pasteurized, the danger posed by such organisms is dramatically reduced or eliminated completely. For example, consumers can assume "frozen concentrate" juices are free from bacteria because their preparation requires heating to 170 degrees.

Odwaila's juice products, however, were not pasteurized. E. coli and other harmful bacteria were kept at bay with a multistep production process that selected only the finest fresh fruit, washed each piece twice, and then refrigerated the squeezings to slow the growth of microorganisms. Deliveries were made to retailers each day in refrigerated trucks, and products were displayed and sold from special Odwalla coolers. The process was repeated each business day, with the previous day's unsold products gathered up by Odwalla's drivers and returned to the plant for disposal. Thus, the product customers bought from Odwalla retailers each day was guaranteed to be fresh-squeezed that very daya feature that loyal customers willingly paid premium prices to obtain.

The question remained: How could the lethal strain of E. coli bacteria get into Odwalla juice? How could the careful, meticulous production process have failed? Over the past 16 years, Williamson and the company's founder, Greg Steltenpohl, and the Odwalla team had worked hard to establish a stellar reputation for the company and their premium, trendy products. Yet, all of their hard work was at this moment on the line. The future of their growing company would depend on how Williamson and his senior team reacted to events over the next few hours. Gathering the papers on his desk, he took a deep breath and began dialing fax numbers.

Odwalla's "All Natural" Production Process

Odwalla has strategically differentiated itself based on the "all-natural" composite of their products. The company uses strictly pure fruit extracts in the creation of their juices, smoothies, and vitamin supplements. However, the "all-natural" base of Odwalla's products holds implications for virtually every aspect of the procurement and production processes. For example, the majority of their fruit is grown in the state of Washington. The seasonal nature of the fruit industry, however, necessitates a switch at some point in the season to less expensive Califonia fruit.

As part of their purchasing agreement, Odwalla mandates that all of the fruit they purchase be handpicked. This reduces the number of bruised and rotten pieces received in the shipments. Aside from the actual procurement of basic ingredients, the company also maintains both a production and quality control division. The production division is responsible for overseeing the creation of the product. This division not only employs people to run the presses, mix the ingredients, and bottle the juices but also employs "sorters" whose main function is to determine which pieces of fruit are acceptable for production. The company uses a quality control division to monitor all processes and uphold strict safety guidelines.

Though 98 percent of the nation's fruit juice went through a pasteurization process, Odwalla's products were unpasteurized. Steltenpohl feared that the use of a pasteurization process and other cleaning agents would kill important nutrients and detract from the taste of the final product. "Absolute freshness," he observed, "is a key component of Odwalla's product offering."

Production versus Quality In mid-1995, juice makevs in Florida were hit by an outbreak of salmonella in orange juice served at Walt Disney World. This outbreak sickened more than 60 children and adults. Consequently, the state of Florida drafted strict rules that required larger juice companies to take additional measures to ensure the safety of their production processes. As a California-based company, Odwalla was under no obligation to adhere to these standards, and very few juice companies outside of Florida actually did.

In early 1996, Odwalla hired two managers from the Florida juice industry. One of them, Dave Stevenson, who oversaw quality assurance, suggested that Odwalla add a chlorine-based rinse for precautionary measures. However, the other executive, Chip Beetle, feared chlorine would leave an aftertaste and was simply not necessary. Williamson agreed and Odwalla continued with their previous procurement, production, and distribution processes. By the summer of 1996, business was booming. In fact, sales were so strong that Odwalla was struggling to keep up with the demand for their product. Some former company officials say that production demands became more important than safety concerns.

As Steve Williamson returned to his office, he picked up the phone and dialed the director of corporate communication's extension. When she answered, he simply said, "l sent the press release. What do we do now?"

what would be an appropriate business strategy memo? specifically the critical issues, recommendations section and conclusion.