Crisis management inBelgium: the case ofCoca-Cola

Victoria Johnson andSpero C. Peppas

Introduction

First it was mad cow disease, then it wastainted animal feed. As Belgians were reelingfrom the crisis over cancer-causing dioxin inanimal feed leading to the withdrawal ofcertain meats, eggs and dairy products fromsupermarkets, yet another health crisis rockedthe nation. The effects were to be feltthroughout Europe with rumblings heard asfar away as Japan and India. This time it was asoft drink that was the cause for concern. On14 June 1999, in a move that was to cost morethan $200 million in expense and lost profitsand cause damage to the brand image of thetrade-marked products of The Coca-ColaCompany (CCC), the Belgian HealthMinistry ordered that Coca-Cola trade-marked products be withdrawn from theBelgian market and warned Belgians not todrink any Coca-Cola trade-marked productsthey had in their homes. Later, France,Luxembourg and The Netherlands alsobanned or restricted the sale of Coca-Colaproducts.

The production and distribution ofCoca-Cola

The CCC, with headquarters in Atlanta,Georgia, USA, is the world’s leadingproducer of soft drink concentrates andsyrups, providing consumers with one of theworld’s most popular soft drinks. CCC and itssubsidiaries manufacture, market anddistribute syrups, concentrates and beveragebases for the Coca-Cola brand and over 230other brands bearing CCC trade marks thatare sold world-wide. In addition, CCCprovides advertising and other promotionalsupport for these brands. Coca-ColaEnterprises (CCE), the world’s largestproducer and distributor of products bearingCCC trade marks, as well as other bottlers,buy CCC’s syrups and concentrates andproduce and distribute final soft drinkproducts. Europe is an important market forCCC and CCE with approximately 23 percent of world-wide sales originating there.While other bottlers produce and distributeCCC brands in some European countries,CCE is the sole licensed bottler in Belgium,Great Britain, Luxembourg, TheNetherlands, and most of France.

The authors

Victoria Johnson is Professor of Management and

Spero C. Peppas is Professor of International Business,

both at Stetson School of Business and Economics, Mercer

University, Atlanta, Georgia, USA.

Keywords

Crisis management, International business, Leadership,

Management, Marketing, Case studies

Abstract

Belgium was still reeling from fears over mad cow disease

and from the news that the carcinogen, dioxin, had been

introduced inadvertently into animal feed, when yet

another health crisis rocked it. This new crisis was

precipitated by consumer complaints about an irregular

taste and smell in bottled soft drinks and by reports that

more than 100 consumers had become ill after noticing an

odour on the outside of canned soft drinks. As a result,

The Coca-Cola Company, under instructions from the

Belgian Health Ministry, withdrew its trade-marked

products from the Belgian market. The effects of this crisis

were felt not only within Europe, but also in countries as

far away as Japan and India. Subsequently, the company

identified specific production and distribution problems

which could have contributed to the health crisis.

Pursuant to the Ministry’s order, the company took

immediate steps to remedy those problems, and the

Ministry’s ban was lifted. In addition, an aggressive

marketing campaign was launched in an effort to regain

consumer trust, confidence, and market share.

Nevertheless, this incident resulted in substantial financial

costs to The Coca-Cola Company and in considerable

damage to its global image and reputation.

Electronic access

The Emerald Research Register for this journal is

available at

http://www.emeraldinsight.com/researchregister

The current issue and full text archive of this journal is

available at

http://www.emeraldinsight.com/1356-3289.htm

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Corporate Communications: An International Journal

Volume 8 . Number 1 . 2003 . pp. 18-22

# MCB UP Limited . ISSN 1356-3289

DOI 10.1108/13563280310458885

Reasons for recall

According to Coca-Cola Chairman and CEO,Doug Ivester, in a statement released on 16June 1999, The Coca-Cola Company, incooperation with the Belgian Health Ministry,withdrew its products from Belgian stores, asa result of two ‘‘unrelated’’ matters. In thefirst case, some consumers complained of anirregular taste and odor in bottled products.In the second, more than 100 consumers(students at six schools) became ill afterreporting an unpleasant odor on the outsideof canned products. Symptoms of thereported illnesses included headaches,stomach-aches, shivering and nausea, andwere severe enough to lead to hospitalizationof students in some cases.

Products included in the recall were Coca-Cola, Coca-Cola Light (the European versionof diet Coke), Fanta, Sprite, Nestea, Aquariuslemon, orange, and grapefruit, Bon Aqua,Kinley Tonic and Lilt. It was estimated that atotal of 15 million bottles and cans ofproducts were recalled.

A week after the reported illnesses, TheCoca-Cola Company responded with its firstpublic statement. Ivester said:

The Coca-Cola Company’s highest priority isthe quality of our products. For 113 years oursuccess has been based on the trust thatconsumers have in that quality. That trust issacred to us. I want to reassure our consumers,customers, and government officials in Europethat The Coca-Cola Company is taking allnecessary steps to ensure that all our productsmeet the highest quality standards. Nothing lessis acceptable to us and we will not rest until weensure that this job is complete. We deeplyregret any problems encountered by ourEuropean consumers in the past few days (KONow, 1999a)[1].

At the time, the Company identified twospecific production and distributionproblems:(1) ‘‘Off-quality’’ carbon dioxide that affected

the taste and odor of some bottled drinks.(2) An offensive odor on the outside of some

canned drinks. The odor appeared tointensify when the cans were stored invending-machines.

Ban lifted

On 22 June 1999, the Belgian HealthMinistry lifted its ban on CCC trade-mark

products (except for those products sold invending-machines, pending further review)on the condition that CCC and CCE usefresh basic materials, conduct a thoroughcleansing of the plants, enhance current safetymeasures, as well as take other steps.

In yet another statement, Ivester explained:We respect the Ministry’s obligation to thepeople in these times of deep sensitivity to publichealth issues. Nothing is more important thanprotecting the public’s health, and we haveworked very closely and intensively with theMinistry, providing significant amounts ofinformation confirming complete confidence inthe safety of our products and packages.

He announced:We let down the people of Belgium, and we’resorry for that, but now we’re committed to dowhat it takes to earn their complete trust again(KO Now, 1999b).

He further explained that immediatelyfollowing the Belgian Health Ministry’sdecision to ban products bearing CCC’s trademarks, the Company began moving to resumeproduction of high-quality products whilemaintaining efforts to recover and destroy allexisting product, as had been ordered by theBelgian government. According to Ivester:

The Minister made it clear he did not want us toconduct this process through the media, and wehave completely honored that request but, nowthat the situation has been resolved, we believewe have an obligation to all of our constituents inBelgium to be very open and informative (KONow, 1999b).

Ivester apologized to the Belgian governmentand to consumers in newspaper and broadcastadvertisements. In these ads Ivester said hewas very sorry for any discomfort orinconvenience stating that:

for decades, we’ve worked very hard toestablish ourselves as true leaders in providing highquality consumer products (KO Now, 1999b).

Aggressive marketing bolsters image

Later, in mid-July, Ivester and Coca-ColaCFO, James Chestnut, met with 100 analyststo update them on CCC’s business, theBelgian crisis, and global economicconditions. Ivester reported that CCC wasputting forth an aggressive marketingcampaign in Europe to gain the trust ofconsumers. In Belgium alone, promotionalactivities included ‘‘the Coca-Cola BeachParty’’ with California beach music, dancing,

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Crisis management in Belgium: the case of Coca-Cola

Victoria Johnson and Spero C. Peppas

Corporate Communications: An International Journal

Volume 8 . Number 1 . 2003 . 18-22

and 20 tons of ‘‘imported’’ sand; ‘‘Belgium’sannual Coca-Cola Summer Tour’’ whereCoca-Cola brand products were presented atover 90 locations throughout the country; and‘‘the Originals Promotional Campaign’’,where over 72,000 consumers wonpremiums. By the beginning of August,research indicated that core users of Coca-Cola brand products reported the sameintent-to-purchase levels as before the crisis.

Mass hysteria?

Almost four months to the day that the banon all CCC trademarked products was lifted,four students in Tienen, Belgium, went to alocal hospital with complaints they saidresulted from consumption of a Coca-Colaproduct. Tests conducted at bottling plants inBelgium and Great Britain as well as at anindependent laboratory in The Netherlandsconfirmed that the products in question were‘‘normal’’ and of the ‘‘highest quality’’. Noaction was taken against CCC or CCE by theHealth Ministry.

Five months later and nine months after theoriginal incident, Isy Pelc, head of thepsychiatry and psychological medicine serviceat Brugmann Hospital in Belgium, said thechildren’s illness was due to psychosomaticreactions caused by unpleasant odors. Hisstudy, based on 110 students who hadclaimed illness after drinking Coca-Colaproducts and another 40 who had not becomeill, was in line with the findings of twoprofessors from the Catholic University ofLeuven who had earlier attributed the crisis tomass hysteria. In an interview, Pelc reportedthat ‘‘with this investigation, there is clearevidence that there was a psychologicalcontribution to the crisis’’ (Adler, 2000).While he believed the symptoms were realand not imagined, they stemmed fromconcerns over Belgium’s dioxin crisis, inwhich the carcinogen had entered the humanfood chain from tainted animal feed. Thedioxin scare had come after fears in Europeover beef contaminated by mad cow disease.While students reacted to a ‘‘sulphur smell’’that had resulted from the carbonationprocess in some bottled Coca-Cola as well asto the smell of preservative chemical on theoutside of some cans, according to Pelc,‘‘there was not enough found to causetoxicological illness’’ (Adler, 2000).

Case notes

ObjectivesThis incident is intended to demonstrateorganizational issues and challenges that canthreaten a company’s short- and long-termperformance, as well as the long-lastingimplications of strategic decisions made bymanagement. CCC and CCE Web sitesprovide additional information in terms offinancials and press releases. Consulting thesesites is an excellent means of seeing howcompanies use Internet technology to provideinformation at such times. This case includesconcepts related to crisis management andbusiness continuity planning, political, legaland socio-cultural environments ininternational business, leadership anddecision-making, and marketing. Study of thisincident should prove helpful to firmsoperating in the global arena in identifyingsimilar situations and in developingappropriate organizational strategies.

DiscussionA crisis management plan should be a part ofan overall strategic management plan. If theplanning process has included a SWOTanalysis, major areas of vulnerability havebeen identified, and can therefore beaddressed. In an age of instantaneouscommunication and media coverage,response time is critical in minimizing damageto image and/or brand name. Traditionallythe proper place to address these areas ofvulnerabilities and subsequent responses is ina business continuity plan. Contingencyplanning is crucial to ultimate success indealing with opportunities and threats to acompany. Moreover, because factors ofimpact vary from country to country andculture to culture, it is very important thatresponse plans are developed for eachlocation and include input from localmanagement and public officials.

Further, an ‘‘immediate response’’ roleshould be delegated to those with expertise inthe appropriate professional disciplines. The‘‘Law of the situation’’ (Wolf, 1988-1989)states that different situations requiredifferent kinds of knowledge. That theoryremains valid in today’s corporateenvironment. Individuals possessing therequired knowledge, all other things beingequal, move toward leadership of themoment. As potential situations in the

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Crisis management in Belgium: the case of Coca-Cola

Victoria Johnson and Spero C. Peppas

Corporate Communications: An International Journal

Volume 8 . Number 1 . 2003 . 18-22

business continuity planning process areidentified, teams of professional expertsshould be assembled to prepare responses inorder to minimize risks/damages. This willenable management not only to forecastpotential damaging events, but also todecisively confront a situation as quickly aspossible after an actual crisis has occurred.Individuals to be included on the team couldbe: engineers, medical personnel, scientists,security experts, media specialists, policyanalysts, and others depending on theparticular industry.

From a historical perspective, there isevidence that the greater the response time toa critical incident, the greater the long-termdamage to a company’s financial security andreputation. In an age of instantaneouscommunication, Internet availability andsatellite media coverage, the amount ofinformation and the speed at which customerscan be informed of a perceived or actualproblem have increased exponentially. Theprevailing media trend is to accentuate thenegative rather than the positive aspects ofsituations. Nature abhors a vacuum.Therefore, if decision-makers are unwilling orunable to rapidly address challenges, thensensational images will linger and growunabated in the perceptions and attitudes ofstakeholders. Perception becomes reality. Inthis case, the company’s silence as theyattempted to identify the source of theproblem led to a loss of public confidence.The longer management delays a response,the more opportunity for permanent damageto the psychological bond which connects theconsumer to company image and reputation.A critical component in this emotionalcontract is trust and confidence in thecorporation’s ability to maintain its successfulposition in the market and in the community.It is therefore imperative that local personnelwho have built rapport and credibility withlocal customers and political units beincluded as a visible part of the immediateresponse plan. There had been a recentchange in political leadership in Belgiumfollowing the dioxin crisis and, as the head ofCCE’s Belgian operations was in the processof stepping down from his position, thenecessary rapport between company andgovernment had not been established.

Another important consideration in criticalincidents such as this is the preservation ofbrand image. Brand image is created in the

minds of the consumers and convinces themthat products have value-added componentsabove and beyond the products offered by thecompetition. Value-added components caninclude product quality, price, design, andintangible elements such as status, nostalgicmemories, confidence in companymanagement and leadership, and a positiverecord of corporate social responsiveness.When the tangible elements are relativelyequal, then intangible elements must bepreserved and protected for a company tomaintain and to continue its long-termposition in the market. Preserving andprotecting brand image necessitate identifyingpotential threats, and addressing those threatswhen they occur, as effectively andexpeditiously as possible. This can be done bynot only designing and implementingemergency response plans as a part of theoverall management strategy, but also byhaving extensive quality assurance systems,effective communication processes, andongoing reinforcement of the company’scommitment to the community.

ConclusionFor decades, The Coca-Cola Company hasbeen a standard-bearer of management andleadership practices against which othercompanies have been measured. TheCorporation reigned supreme in areas such asquality assurance, product development,manufacturing and distribution, brandmarketing, customer service, stakeholderrelationships, and corporate socialresponsiveness. The Coca-Cola brand hasbecome a symbol of globalization – thesecond most recognized phrase world-wideafter ‘‘OK’’. It also enjoyed unparalleledloyalty and commitment from employees,customers and stockholders. One has only toevoke examples such as the New Coke/ClassicCoke case, the rapid and steady increase inthe stock price under Chairman RobertoGoizueta, the passion and zeal of Companyemployees who have ‘‘Coca-Cola Red’’ bloodflowing through their veins, and the ubiquityof respect and admiration for the Company toillustrate the stature of its image. TheCompany had a reputation for doing the rightthings and for doing things right.

This favored status was dealt a severe blowwhen the health crisis erupted in Belgium.Historically, the Company had beenespecially adept in confronting challenges and

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Crisis management in Belgium: the case of Coca-Cola

Victoria Johnson and Spero C. Peppas

Corporate Communications: An International Journal

Volume 8 . Number 1 . 2003 . 18-22

minimizing risks with little or no permanentdamage to its financial resources or image.However, the mad cow disease and dioxincontamination cases had very recentlythreatened the health and safety of Belgiancitizens. Perceiving a cover-up, public unrestsubsequently led to the resignation of anumber of government officials.Undoubtedly, this environment wasconducive to yet another episode of suspectedproduct contamination and ultimate productrecall. Therefore, the precarious social/political environment necessitated acalculated and sensitive approach to crisismanagement.

The Company’s response to theunprecedented product recall includedidentifying two very specific production anddistribution problems that apparently led toquality breakdowns, taking steps to eliminatethose problems, and re-establishing publictrust and confidence. The issue in thissituation is not whether the Company wasable to accomplish these tasks, but ratherwhen and how it actually did so.

When the crisis began, Company executivestook several days to make the matter a toppriority. The Company did identify andpublicly admit that there had beenmanufacturing mistakes. However, accordingto some observers, Coca-Cola stumbledrepeatedly, exacerbating the situation. Forexample, an apology to consumers came morethan a week after the first public reports ofillness. It took ten days after the first childbecame dizzy and nauseated for topexecutives to arrive in Belgium and Coca-Cola’s initial response attempted to minimizethe number and severity of the illnesses(Hayes et al., 1999). A senior CCE official,Phillippe Lenfant, did state that the scare hadbeen mishandled, that communication wasinadequate, and that the Company wasunprepared for a crisis of this magnitude (TheLos Angeles Times, 1999).

Tests conducted in Europe found that theproducts did not contribute to illnesses and

that the symptoms were psychosomatic. BenDeutsch, Coca-Cola spokesman, said thesefindings brought clarity and closure to theincident. He further stated that ‘‘the recallwas a humbling experience – a wake-up callfrom which we learned to be ever-vigilant inour concern for our consumer and the qualityof our products’’ (Unger, 2000).

In spite of these assurances, damage toCompany image, reputation and prestige hasyet to be completely alleviated. Subsequentevents continue to affect the Company as isillustrated by the sudden resignation ofChairman and CEO, Douglas Ivester, theflattening of the organizational structure, in-country assignment of executives responsiblefor global operations, and a renewedcommitment to local management decisionmaking.

Note

1 KO = New York Stock Exchange ticker symbol forThe Coca-Cola Company.

References

Adler, L. (2000), `̀ Psychiatrist says Coke crisis was

psychosomatic’’, The Coke Machine News Digest,

April 3.Hayes, C., Cowell, A. and Whitney, C.R. (1999), `̀ Execs

admit stumbling in Coke contamination’’, Times-

Picayune, New Orleans, LA, June 30.KO Now (1999a), `̀ Ivester responds to Belgian product

withdrawal’’ KO Now, June 16.KO Now (1999b), `̀ Coke back in Belgium’’, KO Now,

June 23.(The) Los Angeles Times (1999), `̀ Coca-Cola executive

says firm mishandled scare; beverages: he admitscommunication was inadequate as products were

pulled from shelves’’, The Los Angeles Times,

June 28.Unger, H. (2000), `̀ Illnesses in Coke recall found

psychosomatic’’, Atlanta Journal-Constitution ,

Atlanta, GA, April 1.Wolf, J. (1988-1989), `̀ The legacy of Mary Parker Follett’’,

Bureaucrat, Winter, pp. 53-7.

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Crisis management in Belgium: the case of Coca-Cola

Victoria Johnson and Spero C. Peppas

Corporate Communications: An International Journal

Volume 8 . Number 1 . 2003 . 18-22