BEECH-NUT'S APPLE JUICE - By Donna J. Wood and Alden Detwiler

During the 1970s and early 1980s, the Beech-Nut Nutrition Corporation, with primary plant facilities at Canajoharie, New York, and headquarters near Philadelphia, was the second largest maker of baby foods in the United States, with roughly a 15 percent market share (comparable to Heinz's market share), compared to Gerber's 70 percent. From its origins as a meatpacker in 1891 to its modern status as a diversified food manufacturer, the company had built a reputation for pure, natural, high-quality products (Welles, 1988; Traub, 1988).

In 1973, lawyer Frank Nicholas and a group of colleagues bought the baby foods division of Beech-Nut from Squibb Corporation, which had acquired the company in 1969. The new owners were undercapitalized and overloaded with debt from the beginning, and the company began to lose money.

Beech-Nut signed an agreement in 1977 with a wholesaler run by Zeev Kaplansky, Interjuice Trading Corporation, to purchase apple juice concentrate. Interjuice was able to offer concentrate well below the market price (Welles, 1988), an opportunity that Beech-Nut was reluctant to turn down, given its financial troubles. By 1978, with apple juice products accounting for 30 percent of total sales, the Interjuice contract provided significant cost savings to a firm deeply in debt (Welles, 1988). Early savings from the contract amounted to about $250,000 a year on a $50 million operating budget. Later, the disparity between the Interjuice product and the market price of juice concentrate grew to 20-25 percent (Traub, 1988).

Jerome J. LiCari, Beech-Nut's director of research and development, and the chemists on his staff heard about the new contract and, because of adulteration rumors flying about the juice industry, wanted to test the new supplies for purity and quality. Although there was no conclusive test of apple juice purity available, the chemists tested the Interjuice product with procedures known to provide good evidence of the presence of adulterants such as corn sugar. Their conclusion was that the Interjuice concentrate was likely to be heavily adulterated, if not completely fake (Welles, 1988). At this point, Beech-Nut was buying about 90 percent of its apple concentrate from this supplier (Mintz, 1987).

Discussion Questions

1. What is the relationship between "evidence" and "proof" in this case? What ethical decision rules can be applied in a situation where there is evidence, but no proof?

2. Where, if anywhere, do you think the "smoking guns" or "red flags" are in this case?

3. Prosecutors accused Beech-Nut of violating its "sacred trust" of providing healthful, nutritious food for babies. Beech-Nut lawyers argued that the bogus apple juice was not harmful and would have been okay to sell if appropriately labeled. How do you assess this conflict?

4. What did Beech-Nut have to gain or lose by joining the Apple Processors' lawsuit against Universal?

5. How did Nestlé's purchase of Beech-Nut change the dynamics of the apple juice situation?

6. What do you think about "a deal too good to be true" as an ethical decision rule?

7. What would be your response if you brought a potential problem to management's attention, and you were called "naïve" and "idealistic" in response?

Attachment:- Case-Beech-Nut Apple Juice Case.doc