Beechnut Final

8/11/2019 Beechnut Final

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INTRODUCTION:

Beech- Nut Corporation founded in 1891. The company had once been a large diversified food

concern selling such products as Life Savers, Table Talk pies and Tetley Tea. Beech Nut was asubsidiary of Nestle, a company known for its quality standards. It had an image of providing its

customers with natural foods. The primary market of Beech nut is US Northeast, Midwest and

California. The company had exports going out to 45 countries. It produced about 200 different

baby food lines including juices, strained foods and juniors combinations of soft vegetables or

fruit for older babies. Apple juice products that accounted for 30% sales were a major item.

This case starts with Newton who is known for the Apple Fall and all the laws of gravity

revolve around that Apple phenomenon. Then after centuries there is a Saga of Steve Jobswhich is also known for its Apple phenomenon. Two Apples changed the world, all the

concepts and digitalization revolves around Apple.

But here is another saga of Apple which is concentrated and all the worth of company is on

stake. Yes, it is the Beech-Nut Nutrition Corporation case. Form the last three decades the

company plays in many different hands but now it is in the yard of Nestle, One of the largest

food companies of the world.

FACTS:

Universal concentrate was 20-25% cheaper than that of other suppliers.

The Apple concentrate used in Beech Nuts Apple juice was supplied by Universal juice

Company

BeechnutsResearch team had worked on many tests but it was difficult to come to any

conclusions about purity as the results were dependent on numerous factors. However,

the company had never received any customer complaints

Processed Apples institute suspected concentrate adulteration in Beech Nuts Apple Juice

which was found to be true after the PAI Laboratory Test.


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The quality assurance head of Beechnut was suspicious of PAIs motive and was of the

view that it may be working for the interest of domestic Apple Growers.

The PAI test was of a private laboratory and had not yet been adopted by the FBA or the

Association of Official Analytical Chemists.

Beechnuts Apple juice was declared one of the purest by A New York Times article

based on FDA results.

The companys sales were $79 million.

Beech-Nut had about 200 different food lines including: Juices, Strained food, Juniors

(combination of soft vegetables or fruit) and Cereal

Nestle invested $60 million to upgrade the plant and increased their marketing budget to

provide high quality.

Juices accounted to 68% of the entire sales and out of which the apple juice products

dominated the category with 30% of sales.

The market share for beech nut juices was 19.3%

Beech-Nut was clearly failing in reaching its target of $705,000 profit.

In 1979 again it was found that the concentrate was almost pure sugar syrup. It was

decided that it should be used for mixed fruit juices but not for pure apple juice.

It was difficult to find the suppliers capable of meeting Beechnutsrequirement for taste,

color and quality.


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CORE ISSUE: Ethical Dilemma

To go with the ethical standards or to go for profitability

All the worth of Beech-Nut Company is on stake. Form the last three decades the company

pla ys in man y different hands bu t now it is in th e yard of Nest le, One of the la rges t

food companies of the world.

Anderson, the CEO BeechNut Nutrition Corporation is thinking what to do?

About the phony concentrate which was found in the Apple juice tanker in New York Plant. The

company claims of 100%pure ju ices are on stake. Who was responsible for this?

Are suppliers are responsible for that concentrate sugar traces in the Apple juice? OR it isdue to the negligence from the companysplant and quality assurance side. Same issue did occur

in the past too when in 1978 it was found by the company that apple concentrate was adulterated

but the issue wasnt taken seriously now even Nestle reports have shown that theapple juice is

false. Issue for the company is that they couldnt afford to change the supplier at this point in

time as mentioned by Anderson because of high cost of switching not only that Universal is

providing them concentrate at a cheaper rate than other suppliers available in the market. There

are no conclusive tests for purity. If the company leaves Universal without any conclusive

evidence of their concentrate being impure, the company had to incur high cost to compensate

the supplier against a possible breach of contract. Although the company can keep on selling the

concentrate according to a law firm but in case its not pure it will not be an ethical practice by

the company and can ruin the image of company in case the news spreads

As a consequence, FDA could create problems for the company and hence could harm its

business and competitive position in the market by publicizing and adulterated products.


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Other issues:

Competitions from Heinz and Gerber, as the companies were spending huge dollars on

increasing their market share.

Due to financial limitation the company was facing difficulty in finding new suppliers forjuices.

Difficulty in finding alternative supplies for juice concentrate.

Alternative decisions:

Decision 1 (Beech-Nut f il e case against Universal Jui ce Company and discard the remaining

inventory):

The company must file case against the universal juice company because this is not a small thing

its a serious issue and claim loss from the universal juice of adulteration of it products. In order

to file a law suit against it supplier, Beech-Nut needs to collect information from quality

assurance department and should collect proof against its supplier. This option will also lead to

bad publicity for the company.

Decision 2 (no action should be taken):

Beech-Nut shouldnt let the matter take into the courtand not file a lawsuit/complaint against

Universal because it will affect companys reputation and in return Beech - Nut would bear a loss

by losing returns and profits. Moreover, Beech-Nut had to face the inquiry carried out by the

FDA and the negative image of the company would be portrayed. Therefore this solution is not

appropriate.

Decision 3 (revise its contr act):

Beech-Nut should revise the agreement with the Universal Juice Company by setting thier

conditions and policies which will not be compromised and should include clause that all

adulterated products would be returned and a penalty would be charged on them. As a result this

would force the Universal Juice Company to provide quality products to Beech-Nut as otherwise

it would have to face the penalty along with returned sales.


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Documents

Beechnut Final