Download Beech Nut - A CASE STUDY-1

A CASE STUDY
UNIVERSITY OF MARY
At Beech-Nut, small means big. It has been in the same small town for over 100
years. Generations of the same families have worked together, taking extra care
to make delicious and nutritious baby food, just like you would. Because the
company believes that it’s all of these small details that make their baby food
taste good.
In 1891, Beech Nut started as a family business, smoking ham and bacon in
Canajoharie, New York. The next product produced was grape jam, which was
based on a family recipe of one of the company’s founders. Over the past century,
Beech Nut made many additional food items including coffee, peanut butter, and
macaroni. In 1931, Beech Nut started making baby food, and now that’s all they
do. They divested all their other interests. Today, Beech Nut makes more than
150 delicious baby foods formulated to supplement a baby's diet of breast milk or
formula. There are no added sugars, salt or harsh spices to the jarred baby food
recipes, because they believe your baby doesn’t need those unnecessary additives.
However, that was not always the case. Beech Nut learned a hard lesson.
The company was one of the leading innovative firms in its early years, becoming
the first company to place their baby foods in glass jars, becoming the industry
standard and the first company to make their baby food products free of
additives.
In the early 1980’s, Beech Nut was in grave financial danger and looking at ways
to cut costs, due to the higher quality products and their competitor, Gerber.
Beech Nut entered an agreement with a low-cost supplier of Apple Juice
concentrate. The move was expected to save the company $250,000 annually. A
Beech Nut scientist, however, began questioning the quality of the concentrate,
and suggested that the contents contained more than apple concentrate,
including large qualities of corn syrup and cane sugar. He brought this to the
attention of top management, but obsessed with keeping costs low, they ignored
the report. The company continued to sell their product as “pure” apple juice.
Investigators from the Food and Drug Administration, (FDA), confronted Beech
Nut with evidence that proved the apple juice was “adulterated.” The company
denied any wrongdoing and shipped all remaining stock before it could be seized
by the FDA. That didn’t stop the investigation, as the whistle blower was none
other than the scientist who alerted management.
The firm was charged with maximizing profits over informing customers of the
additives. The firm was fined more than $2 million and its top management was
found guilty and sentenced to prison terms for their fraud.
With the company’s reputation ruined, the remains were purchased by RalstonPurina, makers of dog and cat food. The firm did very little to help the cause, and
eventually sold the company to Nestle, a Swiss conglomerate, who installed a new
management team and a new code of ethical values.
In 2001, Beech Nut thought they found some help in the form of Heinz, better
known for its ketchup, in a $185 million merger which would have given Heinz a
larger share of the market. At the time, the number 2 and 3 firms in the industry
shared the remaining 31% following the leader Gerber. A federal court and the
FTC squashed the deal, saying the merger would create a “duopoly” with only two
firms competing in the industry. The news was just another blow to Beech Nut.
Bouyed by the strength of Nestle and their restructuring, the firm found new
domestic help in the form of a private equity group that purchased the company
from Nestle. The Madison Dearborn Capital Partners (under their Milnot
Holding Group label, a canned milk division) picked up the company and
immediately set forth changes to make Beech Nut a viable force against Gerbers.
However, consumer trust in Beech Nut products had plummeted by then, and the
company’s reputation was ruined. MDCP set out to create innovative products,
based on high quality ingredients. In 2002, the company launched a massive ad
campaign with Milnot Holding Company, to strengthen the relationship of Beech
Nut with retailers. Over a couple of years, market share began to rise, making the
company attractive to yet another buy out, this time by a Swiss food group, called
Hero.
Hero, a $1.4 billion European known brand, was ripe for an acquisition, after
divesting its operations of their UK sugar company, Renshaw Scott, to the UK
Sugar refinery company, Napier. The purchase of Beech Nut allowed Hero to
automatically increase its revenues from 17% to 30% of overall company revenues
and strengthen its firm outside of Western Europe. The move also allowed Hero
to concentrate more on its nutritional dietary supplement market, including a
cinnamon extract designed for diabetics. The firm estimates there are 194 million
diabetics worldwide, and the International Diabetes Association estimates there
could be 333 million by 2025.
Hero also purchased a Turkish baby biscuit making company, Ulker Gida, hoping
to increase its market share even more and provide greater diversity. The baby
biscuit industry is about $25 million business.
The World Health Organization (WHO) is looking at increasing nutrition and
creating healthier environments for world infants. WHO has determined through
research that more than 50% of infants who die under the age of 5, is due to
malnutrition.
Gerbers, a subsidiary division of Novartis, another Swiss congolomerate,
continues to hold a huge lead in the market share of baby foods, at 77.4%. Heinz
(at 7.6%) and Beech Nut (15%) share the remaining market share. Beech Nut is
hoping to gain an advantage by securing a Federal Government’s Women, Infant
and Children (WIC) contract, which would help to boost sales. Analysts predict
that 50% of consumers who purchase food under the WIC program, stay loyal to
the brand they use. Currently, that remains as Gerber.
Beech Nut Nutritional Inc., as it is now known, also rests its hopes on the
additional products which Hero can help them supply in the growing baby
nutritional drink industry. Meanwhile, Beech Nut continues to operate where
they started, in New York, with 340 employees. Their headquarters is located in
St. Louis, MO.. In 2005, Beech Nut received the prestigious American Culinary
Chef’sBest (ACC) award, recognizing the highest taste quality standard in the
industry. The firm believes it is the new beginning of what was once a promising,
innovative company.
In 2014, the company initiated a voluntary recall for our Classics Stage 2 Sweet
Potato & Chicken following a single report of a small glass piece found in a jar of
the product. No other products were deemed to be in jeopardy of this same issue.