Management:
Coke Scrambles to Contain a Scare in Europe
BRUSSELS -- All of a sudden, Coke is under siege.
The soft-drink giant is struggling to contain mushrooming alarm over
the safety of its products in Belgium, France, Luxembourg and the
Netherlands. What started out last week as an isolated incident of
several dozen Belgian schoolchildren getting nauseous has turned into an
international health scare and public-relations nightmare. The
government of France has asked Coke to stop shipping all canned products
from its Dunkirk plant. Belgium has banned all Coca-Cola products. Reports of illness yesterday spread to France, where the Consumer
Affairs Ministry reported that 80 people had fallen ill with intestinal
problems and nausea after drinking Coke in the northern region of Nord
Pas-de-Calais, near the Belgian border.
There were even reports that Saudi Arabia and Germany had banned
imports of all Coke beverages produced in Belgium and that the Spanish
government had stopped a shipment of Belgian-bottled Coke and other
brands for fear of contamination. But industry executives said such
pronouncements were surely overzealous, since there was no reason that
Belgian drinks should be imported into Saudi Arabia.
Coca-Cola Co. officials said they had traced the cause of the
contamination to defective carbon dioxide in one plant and to wood
preservative leaking onto cans in another, and they insisted there was
no serious danger. But the company's inability to contain the growing
alarm shows how quickly a global icon can be knocked off center.
Coke has spent years building up its image overseas and now depends
on those sales for 73% of total profits. While the current situation
hasn't hurt Coke's bottom line, its reputation and consumer confidence
are at stake. And with the actual health risks apparently minimal, the
question now seems to be how well Coke can manage its way out of the
problem.
From Atlanta, in his first statement about the situation, Coke
Chairman Douglas Ivester said that the company's "highest priority is
the quality of our products. For 113 years, our success has been based
on the trust consumers have in that quality. That trust is sacred to
us."'
He said he deeply regretted any problems encountered by European
consumers and added that Coke is taking steps to ensure that all
products meet the highest quality standards. "Nothing less is acceptable
to us and we will not rest until we ensure that this job is complete,"
he said.
Coke shares yesterday rose 1/4 to 54.9375 in composite trading on the
New York Stock Exchange.
In the past week, Coke has dispatched more than a dozen officials
from around the globe to Brussels, where a conference room has become
the main operations center. Dr. Anton Amon, Coke's senior vice president
for product integrity, flew in last Friday and brought with him a
half-dozen technical specialists. Paul Pendergrass, a Coke spokesman
based in London, arrived over the weekend and top officials of Coca-Cola
Enterprises Inc., the bottler, are also present.
Yesterday, Randal Donaldson, Coca-Cola's vice president of global
communications and chief spokesman, arrived on the corporate jet to take
over handling the public relations in person. Mr. Donaldson said the
current strategy is to provide as much health and test data as possible
to governments across Europe. He also said he is keeping up with news
reports and trying to reassure consumers that there is no serious health
risk.
Every hour of uncertainty, however, seemed to be making the
public-relations problem worse. A page one headline in Sweden's Svenska
Dagbladet yesterday referring to Coke's problems in Belgium, declared:
"200 Poisoned by Coca-Cola." An Italian paper's page one headline
reported "Alarm Across Europe for Coca-Cola Products."
Some consumers and health authorities remained skeptical that Coke
had adequately identified the causes of the illness. Coke officials
believe that some of the Belgian children had become sick after drinking
product that had been infused with a bad batch of carbon dioxide, which
makes the bubbles in soft drinks. Coke said others had become sick after
drinking from cans that had been contaminated on the outside with a wood
preservative used on wooden shipping pallets. Coke said neither problem
posed a serious health hazard.
What the company has disclosed so far is "not definitive,"'leaving
room for concern, said Rachel Demarque, a specialist in toxic substances
at a Brussels agency that offers advice to the public on poisons. She
said the agency was still receiving numerous calls from Belgians
complaining of nausea, stomach aches or headaches after drinking
Coca-Cola products.
Every hour that the products remain off limits is extremely
frustrating for a company that says its goal is to always have its
drinks within reach when thirst strikes anywhere around the world. At
the Brussels airport, greeting the arrival of nervous Coke officials, is
an illuminated sign depicting a huge bottle of Coke and announcing that
the beverage is "Always On Time."" A few feet away, however, a Coke
vending machine is unplugged and bears a sign reading, "Out of Service."
Even at Coke headquarters in Brussels, Coke products were under lock and
key.
Yesterday afternoon, confusion continued to reign. Coke officials
insisted, for instance, that a French ban related only to cans produced
at its Dunkirk, France, bottling facility, and it was still making and
distributing cans from Marseilles. However, French government officials
indicated that the ban affects all canned Coca-Cola drinks.
And in Belgium last night, the nerve center of the crisis, the
government abruptly postponed a decision it was supposed to make on
whether Coke products could return to the market. Coke officials had
been hopeful that after intensive meetings with health ministry
officials, where Coke technicians and government officials shared
medical data, that the government would at least allow some products to
be put back on shelves. Instead, Belgian health officials are now
supposed to meet with their counterparts from France, the Netherlands
and the European Union this morning before announcing a decision.
"We think we're real close to satisfying the minister's need for
assurance"' about the safety of Coke beverages, said Mr. Pendergrass,
the spokesman. He predicted that it wouldn't be "too long" before Coke
products were on sale again in Belgium but declined to specify how much
longer that might take.
Even fierce rivals sympathized with Coke in its hour of despair,
realizing the shoe could easily be on the other foot. Officials from
PepsiCo Inc. have called their counterparts at Coke to offer assistance.
And yesterday, Wayne Mailloux, Pepsi's European chief, sent an email to
employees, saying, "I would like to emphasize that this is not a
situation which we should treat opportunistically or seek to take
advantage of in any way." Pepsi has 2.2% market share in Belgium and
6.8% in France vs. 64% and 55% for Coca-Cola, respectively, according to
Beverage Digest, an industry publication.
"Every consumer company dreads this -- the bond with the consumer can
be very fragile and you don't want to do anything to break the bond,"'
said Michael Weinstein, chief executive of Triarc Cos. beverage
division, which owns RC Cola and Snapple.
Coke's woes appear to have been compounded by bad timing. Belgians
were already frightened by news that animal feed in their country has
been contaminated with dioxin, a carcinogenic substance. In recent
weeks, large quantities of meat and dairy products to be yanked from
the market. In France earlier this year, two people died after eating
soft cheeses laced with listeria. And British outbreaks of mad-cow
disease have made many Europeans nervous about eating beef.
Some experts say that even if Coke's own problem seems to be
exaggerated, it can't accuse consumers or governments of over-reacting.
"You have to do what the government tells you to do -- you have no
choice -- and you can't accuse your consumers," says Joseph McCann,
PepsiCo Inc.'s former public-affairs chief, who witnessed first-hand
PepsiCo's 1993 scare when syringes allegedly appeared in soda cans. It
turned out to be a hoax.
---
Amy Barrett contributed to this article
By James R. Hagerty and Nikhil Deogun
Staff Reporters of The Wall Street Journal
06/17/1999
The Wall Street Journal
B1
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.