Case study: Beech$-$Nut$$s Bogus Apple Juice

When Lars Hoyvald joined Beech$-$Nut in $1981,$ the company was in financial trouble. In the competitive baby food industry, the company was a distant second behind Gerber, with $15\%$ of the market. After faltering under a succession of owners, Beech$-$Nut was bought in $1979$ by Nestle, the Swiss food giant, which hoped to restore the lustre of the brand name. Although he was new to Beech$-$Nut, Hoyvald had wide experience in the food industry, and his aim, as stated on his resume, was $$aggressively marketing top quality products.$$

In June $1982,$ Hoyvald was faced with strong evidence that Beech$-$Nut apple juice for babies was made from concentrate that included no apples. Since $1977,$ the company had been purchasing low$-$cost apple concentrate from a Bronx$-$based supplier, Universal Juice Company. The price alone should have raised questions, and John Lavery, the vice president in charge of operations, brushed aside tests that showed the presence of corn syrup. Two employees who investigated Universal$$s $$blending facility$$ found merely a warehouse. Their report was also dismissed by Lavery. A turning point occurred when a private investigator working for the Processed Apple Institute discovered that the Universal plant was producing only sugared water. After following a truck to the Beech$-$Nut facility, the investigator informed Lavery and other executives of his findings and invited Beech$-$Nut to join a suit against Universal.

Although some executives urged Hoyvald to switch suppliers and recall all apple juice on the market, the president was hesitant. Even if the juice was bogus, there was no evidence that it was harmful. It tasted like apple juice, and it surely provided some nutrition. Besides, he had promised his Nestle superior that he would return a profit of $$7$ million for the year. Switching suppliers would mean paying about $$750,000$ more each year for juice and admitting that the company had sold an adulterated product. A recall would cost about $$5\mathrm{.}5$ million. Asked later why he had not acted more decisively, Hoyvald said, $$I could have called up Switzerland and told them I had just closed the company down. Because that is what would have been the result of it$.$

Fearful that state and federal investigators might seize stocks of Beech$-$Nut apple juice, Hoyvald launched an aggressive foreign sales campaign. On September $1,$ the company unloaded thousands of cases on its distributors in Puerto Rico. Another $23,000$ cases were shipped to the Dominican Republic to be sold at half price. By the time that state and federal authorities had forced a recall, the plan was largely complete. In November, Hoyvald reported to his superior at Nestle, $$the recall has now been completed, and due to our many delays, we were only faced with having to destroy approximately $20,000$ cases.$$ Beech$-$Nut continued to sell bogus apple juice until March $1983.$