ANALYSIS: Crisis Management - Much-criticized Coke finally pulls out stops/Facing a crisis, Coke acted too slowly for its communications critics. But, Jonah Bloom discovers the soda icon may escape long-term damage

Coca-Cola: two words estimated to be worth more than dollars 20 billion.

Coca-Cola: two words estimated to be worth more than dollars 20 billion.

Destroy every single building, machine and truck owned by Coke, incinerate all its stock, and fire all its staff, and that intangible thing with which you are left?a name?is almost certainly worth more than the annual gross domestic product of most developing nations.

Coca-Cola's total assets in terms of property, investments and cash, according to its 1998 annual report, added up to just short of dollars 19 billion. But the company's total market capitalization is around dollars 160 billion. How do you explain the shortfall? According to Interbrand Newell & Sorrell 'a substantial part of that value' is embodied in the iconic name of the world's leading brand.

Of course this is all so much hot air, or carbon dioxide perhaps, as no one is about to try to buy or sell Coke. But it provides an idea of what was at risk in the last three weeks as the custodians of Coke decided how to react to a rash of complaints from Belgian and French soda drinkers that they were suffering stomach aches, nausea and dizziness.

Reluctant to act

The alarm bells started ringing on the Friday the 11th, and by Thursday the 17th, Coke had been banned in Belgium, France, Luxembourg and the Netherlands as well as in some parts of the Middle East. Belgian health minister Luc Van den Bossche was accusing Coke of a lack of cooperation in handling the problem, and French consumer affairs minister Marylise Lebranch criticized the company for taking too long to provide the authorities with a list of contaminated products.

This was a full-blown crisis, and yet Coke seemed to the outside world to be relatively unperturbed in that first week. Although it is well-known that Coke has a carefully prepared crisis management plan, it seemed reluctant to kick it into action.

The initial statements from Coke tended toward denial. On the 17th, a spokeswoman told the French press that there was nothing to prove that any one of the 80 cases of poisoning in France were linked to Coke. 'We've received thousands of calls on our hotline,' she said. 'But there's no way of knowing if that's because of Coca-Cola products.'

In Belgium on the same day, the director-general of Coke, Philippe Lenfant, said the cause had been identified 'with absolute certainty' as some 'bad carbon dioxide' in an Antwerp bottling factory. But there was also talk of a fungicide that had been inadvertently sprayed on the bottles in Dunkirk.

Also, two French professors claimed that the sickness was probably psychosomatic.

In short, there was a sense that Coca-Cola had started off by denying responsibility, and failed to quickly pinpoint the true cause of the outbreak.

The Wall Street Journal on Friday called the whole thing a 'public relations fiasco,' while France's LaTribune headlined 'Coca Cola's silence nourishes suspicion.' Crisis guru Larry Kamer, of GCI Kamer Singer, says: 'What was lacking in the early stages was a clear articulation of the company's values. In a crisis there's an open window to a company's soul, and people can really see what the company is about.

'For Coke to make comments to the effect that there were 'no fatalities' and that it might not be their fault was a violation of the trust people put in the brand. It was weaseling out of responsibility.'

But Jean-Yves Nauri, managing partner at Publicis in France, which did much of Coca-Cola's crisis work in France and Belgium, claims, 'we didn't want to speak out and say things that are wrong. We waited until we had the results of the analyses.'

Towing a clearer line

The drinks giant did put out a statement from chairman Doug Ivester on the first Wednesday of the crisis (the 16th), expressing his regret for the incident. Ivester was criticized for not going to Belgium earlier, but he did arrive on the Friday to help handle the problem. The company bought up a lot of ad space on Tuesday the 22nd to print an apology.

By the following Monday, the company's spokespeople were towing a clearer line as well, saying that phenol contamination on a number of bottling palettes was responsible for the outbreak and that Coke was 'working night and day to be absolutely sure of the highest standards of its products.'

On Thursday the 25th, Coke also announced that all Belgians were going to be given a free sample. Ivester did a press conference at which he took the obligatory swig of his favorite fix, before announcing, 'I'd like to buy everyone in Belgium a Coke.'

Rob Shimmin, managing director of Ogilvy's Brussels office, and leading exponent of Ogilvy's proprietary crisis preparation tool, BrandShield, says Coke did the right things in a tough situation. 'The company has used the 360 degree approach which we advocate. I know people have criticized the speed of the response, but it was a difficult situation. Belgians are very cynical because the government has mishandled recent health crises, and there was clearly some difficulty tracing the source of the problem.

I think Coke did everything it could.

'It's kind of tricky in that people were suffering 'mild discomfort,' pretty much every kid who feels a bit queasy starts putting it down to Coke. I think agreeing to pay any medical fees was the right approach.'

Coke's response has been compared unfavorably with Johnson & Johnson's amazing handling of the Tylenol crisis in 1982, when J&J?with the help of Cohn & Wolfe's Steve Aiello?pulled every single package of the shelf and introduced tamper-proof packaging.

But Coke was not facing fatalities, and was in the confusing situation of not really knowing how real or big the crisis was. 'The last thing you want to do is over-react and create a crisis,' says Shimmin.

Coke's stock took a temporary hit, dropping dollars 1.06 a share on Tuesday the 15th, after the recalls began. But it has since rallied to a near pre-crisis level of dollars 63.50. The company says the crisis will cost dollars 60 million?1% of sales?to be taken as a non-recurring charge in the second quarter.

But what about the long-term damage to the brand? There are two views: Shimmin's school of thought says the brand is 'Olympic - big and strong' and that it will not be affected in the long-term. But Kamer is not so sure: 'It's a tremendous setback to its reputation.'

But the Belgian papers are already reporting a clamor from consumers for Coke to be put back on the shelves. Although the crisis management team might have been a little sluggish, it looks as if they did enough to keep demand bubbling over?the dollars 20 billion price tag remains.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in