BEECH-NUT

In the late 1970s and early 1980s, Beech-Nut (BN) was the second largest baby food manufacturer in the United States. In 1977, Beech-Nut found itself with mounting debts and a dwindling market share of the baby food market. It was during this period that BN entered into an agreement with Interjuice Trading Corporation (IJ) for apple juice concentrate. With the IJ contract, the company began to turn around and was bought by Nestle in 1979.

At the time of the BN/IJ contract, the apple juice industry was plagued by ruomours of product adulteration (substitution or addition of inferior substances in a product). James LiCari was the director of research at BN, and he became suspicious of the apple juice but was unable to test BNs product because no test for adulteration existed at the time. He however test for corn sugar in the juice and found it present in the concentrate.

LiCari decided to send two BN employees to IJ, but IJ refused them access to the processing plant. They were instead shown only the storage tanks. LiCaris suspicions grew, and by 1981, he was convinced the concentrate was adulterated. He decided to take his suspicions and concerns to the head of operations, John Lavery. He suggested that BN insists that IJ prove they were not using adulterated concentrate, and if they failed to do so, they would lose their contract. However Lavery told LiCari that he should produce the proof or be quiet.

By 1981, LiCari had enough proof that the concentrate had no apple juice, therefore BN was producing fake apple juice. He sent a memo to Lavery, suggesting that they switch suppliers. Lavery however did not respond, and when LiCAri went to see him, he told him that he was not a team player and he could be fired. LiCari then took the matter to the CEO Neils Hoyvald, and after several months without any action LiCari resigned. After leaving, LiCari wrote an anonymous letter to the Food & Drug Administration disclosing adulteration.

BN continued to use the fake concentrate, in fact there was increased pressure to continue because of operating losses. When it was finally discovered that the juice was fake, BN was invited by Apples Institute Inc. to join the law suit against IJ. They however declined, and continued to sell the fake apple juice until they were ordered by the FDA to issue a juice recall. When tests revealed that a batch contained little or no apple juice, BN had the juice removed during the night and the company shipped some of its inventory to the Caribbean (Summary based on Beech-Nut and the No apple juice apple juice Marianne Jennings).

CASE QUESTIONS:

a. Since no one was hurt or became ill from the fake apple juice was LiCaris concern justified? Support your answer

b. Do you agree with LiCaris decision to (a) resign from Beech-Nut, (b) report the matter to the FDA. Support your answer.