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How to Make Your Company More Resilient

The lessons learned during Odwalla’s 1996 E. coli crisis have guided the juice company to financial recovery and explosive growth.

Talk about a life-or-death situation.

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When Odwalla Inc. CEO Stephen Williamson learned that his company’s apple juice had been linked to a strain of deadly E. coli in Washington State, he feared that his company would never recover. When 16-month-old Anna Grace Gimmestad died 10 days later from drinking the contaminated juice, he almost wished that his company would just surrender and collapse.

In the span of one week in late 1996, Williamson found himself at the center of a human tragedy and a business crisis that could have destroyed Odwalla, a company built around its commitment to healthy products. Key employees quit, sales plunged, and the will to fight wavered as Odwalla — and Williamson himself — faced the ultimate setback. “Our vision statement is about nourishing the body whole, yet people were getting sick from our product,” says Williamson, 42. “Then a little girl named Anna died from our apple juice, and Odwalla’s world changed forever. Our company will never be the same.”

That was five years ago. Today, the company is healthy, growing, and profitable. The nation’s number-one fresh-juice distributor, Odwalla has entered the soy-milk and energy-bar markets, upgraded its production facilities significantly, and purchased Maine’s Fresh Samantha Inc. — none of which should suggest that Williamson, Odwalla, or its 750 employees have forgotten the 1996 tragedy or the lessons learned about resilience.

A Healthy Start

Odwalla (pronounced “odewalla”) sprouted from the back of a 1968 Volkswagen van in Santa Cruz, California 21 years ago, when now chairman Greg Steltenpohl and friends Gerry Percy and Bonnie Bassett began squeezing fresh oranges on a $200 hand juicer. Within eight years, the motley crew had incorporated Odwalla, named for a musical piece performed by the Art Ensemble of Chicago, and expanded its juice distribution through Silicon Valley and into San Francisco. In 1992, Steltenpohl moved the company’s production facility from the seaside hamlet of Davenport to California’s fertile Central Valley, where Odwalla thrived by creating juice concoctions like “C” Monster, Mo’ Beta, and Femme Vitale.

When Williamson joined the company in March 1991, Odwalla’s annual sales totaled $6 million. Before the E. coli crisis, the company projected 1996 sales of $90 million. Odwalla was growing by about 30% a year and was expanding distribution into the Pacific Northwest, the Rocky Mountains, Texas, and southern California. While competitors like Snapple teetered on the brink of bankruptcy, Odwalla was reaping the profits of its strong brand and customer loyalty.

“Managing Odwalla’s rapid growth was challenging but exhilarating,” Williamson says. “We were sourcing, squeezing, mixing, blending, bottling, shipping, and delivering our products to more retailers and more consumers every day.”

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A Growth Spurt Arrested

Odwalla’s Cinderella story ended abruptly on October 30, 1996, when the State of Washington Environmental Health Services notified Williamson of a possible epidemiological link between several cases of E. coli O157:H7 and Odwalla’s apple juice. Though the E. coli link remained uncertain, Williamson ordered a complete recall of all products containing apple or carrot juice from 4,600 retail outlets in seven states and British Columbia. Within 48 hours, the $6.5 million recall was completed.

By the time the link was confirmed by health authorities on November 5, news of the E. coli contamination and of consumers’ illnesses had spread across the United States. Sales dropped 90%; Odwalla’s stock price plummeted 34%; customers filed more than 20 personal-injury lawsuits; and a grand-jury investigation threatened to rupture the tight-knit community of some 500 Odwalla employees. Most small companies would have succumbed to such injuries within the year.

But in the midst of the crisis, Odwalla’s leaders launched a survival strategy that hinged on four objectives: constant internal communication, personalized customer service, fast and effective response, and responsibility — that is, admitting when you’re dead wrong.

Health Tip 1: Talk It Out

In the weeks following the E. coli outbreak, Odwalla faced a deluge of FDA investigations, product recalls, media criticism, and customer inquiries. As more juice was tested and more victims were uncovered, Odwalla employees struggled to keep up with the latest information. “At first, things were changing so quickly that the core management team met every 15 minutes,” Williamson says. “As things calmed down, we began meeting once an hour, then twice a day, and finally once a day. As the pace of information changed, we changed how we communicated.”

On the day that news of the E. coli contamination first broke, Odwalla was caught unprepared. Anxious consumers began calling the company’s 800-number with questions about the outbreak before customer-service representatives even knew about the crisis.

By day two, Williamson began conducting regular company-wide conference calls. Employees across the organization could dial in to hear Williamson’s overview of the day’s findings and to ask him questions. “People wanted to feel connected to the change surrounding them, and they wanted to know how the company leaders were dealing with the situation,” Williamson says. The conference-call concept proved so popular and useful that Williamson still holds a call each quarter to discuss the state of the union with his employees.

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Health Tip 2: Keep It Clean

From the beginning, Odwalla has relied on a network of route managers who deliver Odwalla products to retail outlets and manage relationships with trade partners across the country. This hands-on approach was more expensive than a third-party distribution system, but it more than justified its cost during the crisis. “Following the recall announcement, we had only a few days to reassure our trade partners and our consumers,” Williamson says. “In less than a week, our coolers would have been unplugged, our products thrown out, and our space in the market lost.”

Immediately following the E. coli detection, Williamson asked route supervisors to yank apple and carrot products from coolers and to talk one-on-one with account managers. They revisited retail sites every day to deliver updates and to post public notes on Odwalla coolers. The company also bought ads in local papers, alerting consumers to the recall, and offered to cover medical expenses for anyone affected by the contaminated juice.

“Odwalla didn’t survive by accident,” Williamson says. “For 15 years, we built a reservoir of goodwill in the Bay Area. When crisis struck, some of that goodwill drained away, but a lot of people still believed in Odwalla, partially because we never deceived or manipulated them. When things go bad, people want to look inside a company and to see whether its soul is good. Ours is.”

Odwalla maintained its open-door policy in December 1996, when the company introduced a stringent new quality-control process, and in July 1998, when it pleaded guilty to federal criminal charges and agreed to pay a $1.5 million fine for its involvement in the E. coli outbreak. “We could have kept the grand-jury investigation under wraps until the settlement, but we believed that our customers deserved to know the truth,” Williamson says.

Health Tip 3: Jump On It

For a small company with highly perishable products, time is more than money. Time is survival.

When Seattle’s health officials contacted Williamson that day in October, he didn’t first call his lawyer or summon the board of directors. After ordering the recall, he immediately reassigned all managers to one of three teams: managing the existing business; plotting a reemergence strategy; and managing inquiries from health authorities, media, and customers. While one team worked to reassure distributors, another team devised new formulas for Odwalla drinks containing apple or carrot juice.

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“We had no crisis-management procedure in place, so I followed our vision statement and our core values of honesty, integrity, and sustainability,” Williamson says. “Our number-one concern was for the safety and well-being of people who drink our juices.”

Within just five weeks of the recall, Odwalla had initiated an entirely new method of juice production called flash pasteurization — a surefire method of killing bacteria with heat. On December 5, Odwalla brought back its apple juice — now produced under stringent guidelines approved by the FDA.

Health Tip 4: Take It Back

For Odwalla, instituting flash pasteurization was more than just a quick fix for a dangerous problem; it was admitting that the company’s founding principles were wrong. Greg Steltenpohl had built the company on a promise of absolute freshness and insisted that pasteurization stripped juice of its taste and nutrients.

Odwalla originally believed that it could avoid harmful bacteria in its juicing process by passing along its high standards to fruit growers and handlers. Odwalla instructed its suppliers to harvest only tree-picked fruit that had not fallen to the ground. That plan failed when a batch of contaminated apples reached Odwalla’s production facility in Dinuba, California.

In the days following the E. coli outbreak, Odwalla did not try to defend its policy against pasteurization. The company admitted its fault, scrapped its operating system, and asked leading industry experts to help it start all over again — fast. Odwalla invested $1.5 million in new safety procedures within a year of the recall. Today, the company adheres to a Hazard Analysis and Critical Control Points program that exceeds FDA requirements, tests every batch of juice for purity, performs daily microbiological tests, and leads the charge for higher government standards across the juice industry.

“Odwalla has been scarred forever by the mistake that we made in 1996,” Williamson says. “We don’t try to hide that scar. We don’t cover it up. We keep it in plain sight to remind us of the tragedy that we must avoid at all costs.”

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Williamson says that the process of trashing and reinventing its production methods forced Odwalla to take a long, hard look at its business model. And when it pulled the world into focus again, Odwalla realized that it was no longer content being a quirky little juice maker from California. In the years following the E. coli outbreak, Odwalla has built a brand that represents more than good juice. The company, which merged with Maine’s Fresh Samantha last year, now produces Future Shakes, health bars, and soy milk.

“I want Odwalla to be the milkman of the 21st century,” Williamson says. “Growing up, I associated the milkman with health, home, and dependability. I want Odwalla to become synonymous with nourishment morning, noon, and night. I want Odwalla to become a way of life.”

Magazine Plus: How to Bounce Back From Setbacks

Sidebar: How to Make Yourself More Resilient

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