Schwan's Contaminated Ice Cream Crisis: Lessons on Effective Crisis Management

Background

Task:

How would you advise the company to improve the effectiveness of its response? Include at least two recommendations. Support your response with specific examples. Illustrate the specific course concepts you relied on to draw your conclusions.

The washing, however, did not completely eliminate the bacteria, and as the contaminated truck sat idle, waiting for its next load, the bacteria multiplied. Unfortunately, for Schwan’s Sales Enterprises (Schwan’s), the contaminated truck’s next assignment was to haul ice cream mix to the Schwan’s plant in Marshall, Minnesota. The ice cream mix was severely contaminated by the time it was delivered to Schwan’s. In turn, the mix contaminated every part of the Schwan’s ice cream processing system that it touched. Egg-associated salmonella infections are a serious health problem. The CDC explains that persons infected with salmonella experience “fever, abdominal cramps, and diarrhea beginning 12 to 72 hours after consuming a contaminated food or beverage” (Centers for Disease Control and Prevention, 2010). The illness typically lasts 4 to 7 days. Antibiotic treatment is sometimes prescribed and, in some cases, “the diarrhea can be severe, and the person may be ill enough to require hospitalization” (Centers for Disease Control and Prevention, 2009). Like other food-borne illnesses, salmonella bacteria are most dangerous for the very young and the very old. The bacteria can be killed by thoroughly cooking or pasteurizing infected eggs. The eggs in the Viessman truck were raw and unpasteurized.

Schwan’s was a private company believed to be earning between $1.2 billion and $1.5 billion annually. Schwan’s products were, and still are, shipped throughout the United States. As has been the case since the company began in 1952, Schwan’s ice cream and other frozen foods are sold door-to-door by drivers in yellow, refrigerated trucks. Some of Schwan’s products are also distributed to grocery stores throughout the country. Schwan’s drivers tend to establish friendly relationships with their customers, because the drivers deliver products several times per month. The popularity and broad distribution of Schwan’s products meant that, in a short time, a wide network of customers had purchased infected ice cream. The subsequent outbreak was enormous. At least 224,000 people in 35 states became ill, making the Schwan’s crisis the largest food-borne illness outbreak in history (“Ice cream poisoning,” 1996). In the middle lane, Schwan’s trucks are on their way to supply frozen food throughout the nation SOURCE: Photo Courtesy of the Schwan Food Company. A GUIDING PHILOSOPHY From Schwan’s perspective, the crisis began on October 7, 1994. An epidemiologist from the Minnesota Department of Health contacted Schwan’s, telling them that there was a “very, very big statistical relationship” between Schwan’s ice cream and a widespread salmonella outbreak (Sievers & Yost, 1994, p. 1). Once this information was received, the company leaders met immediately to discuss their strategy. Schwan’s had a crisis management plan in place, but the guiding philosophy for the company came from a statement made by company president Alfred Schwan. Schwan’s manager of public affairs recalled that Schwan asked simply, “If you were a Schwan’s customer, what would you expect the company to do?” (D. Jennings, personal communication, January 29, 1996). Jennings went on to say that this statement by Schwan’s leader inspired the company to make the “right choices” throughout the crisis. SCHWAN’S CRISIS RESPONSE Schwan’s did not hesitate to respond to the mounting evidence. Even before the final tests were processed, the company publicly announced that it was recalling the suspected ice cream. In the announcement, Schwan said, “The well-being of our customers is our very first priority at Schwan’s, which is why we are willingly withdrawing our ice cream products from distribution and cooperating fully with government agencies” (Sievers & Yost, 1994, p. 1).

Schwan's Crisis Response

Schwan’s crisis response included apologies and refunds delivered by drivers, a consumer hotline, and compensation for medical treatment. Schwan’s had an advantage over most distributors in that the company’s drivers had face-to-face contact with customers. Drivers apologized to customers, collected the recalled ice cream, and refunded them for the cost. Because the drivers had delivered the product, they were able to identify and contact a majority of the people who had purchased the tainted ice cream. Most food processing companies have no idea, beyond delivery to a grocery store or restaurant, who has purchased their products. Schwan’s managed the expansive nature of the outbreak by establishing a customer hotline. The company spared no expense with its hotline. Rather than using prerecorded messages, calls were answered in person. Jennings recalled that the hotline received “15,000 [calls] a day at its peak” (D. Jennings, personal communication, November 19, 1996). The hotline gave customers another means of speaking directly with the company to get answers to their questions. A third strategy in Schwan’s crisis response was to compensate customers for any medical expenses they may have incurred due to eating the infected ice cream. The company mailed a letter to customers offering to pay for diagnostic medical exams. The crucial paragraph in the letter reads, If you believe you may have persisting symptoms of salmonella and have eaten any of our ice cream products mentioned, we want to encourage you to see your physician and get the tests necessary to confirm it one way or the other and get the treatment you need. The information on the reverse side of this letter will explain what the symptoms might include and how to go about getting the test. We will pay for the test. (D. Jennings, personal communication, October 14, 1996) The letter clearly indicated that Schwan’s valued the well-being of its customers over all other considerations. The letter, like all Schwan’s correspondence with its customers, emphasized the guiding philosophy established by Alfred Schwan at the onset of the crisis. LEARNING FROM THE CRISIS Schwan’s immediate and thorough response to the crisis enabled the company to recover quickly without losing its customer base. Schwan’s also used the crisis to learn how to make its products safer. In response to the salmonella outbreak, Schwan’s made the following changes:     Schwan’s built a new facility allowing the company to repasteurize all products just before final packaging.     Schwan’s contracted to have a dedicated fleet of sealed tanker trucks to transport its products. Although these changes were costly, Schwan’s enacted them voluntarily. These changes established a new standard of safety in the food processing industry. YOU MAKE THE CALL After examining this case, it is time to determine whether Alfred Schwan and his company displayed effective leadership in managing the salmonella outbreak. First, take a moment to review the lessons for effective leadership in crisis situations described in Chapter 7. These lessons should guide you in evaluating the strengths and weaknesses of Schwan’s crisis response. As you contemplate the questions that follow, consider whether Schwan was effective or ineffective in addressing his customers’ needs and concerns. Lessons on Developing Effective Leadership Lesson 1: Effective leadership is critical to overcoming a crisis.    In what ways was Schwan’s leadership critical to overcoming the crisis? Lesson 2: Leaders should be visible during a crisis.    In what ways did Schwan’s make itself visible following the crisis? Lesson 3: Leaders should work to develop a positive company reputation during normal times to build a reservoir of goodwill.    How did Schwan’s develop a strong reputation prior to the crisis? Lesson 4: Leaders should be open and honest following a crisis.    In what ways was Schwan’s open and honest following the crisis? Lesson 5: Leaders who manage crises successfully may create opportunities for renewal.    How did Schwan’s create opportunities for renewal following the crisis? Lesson 6: Leaders should cooperate with stakeholders during a crisis and should work to build consensus.    Did Schwan’s cooperate with stakeholders during and following the crisis? Lesson 7: Poor leadership, including denials, cover-ups, or lack of response, can make a crisis much worse.    Did Schwan’s leadership make the crisis better or worse? Lesson 8: Leaders must adapt their leadership styles and contingencies during crises.    Did Schwan’s leadership adapt its leadership style to the nature of the crisis? Lesson 9: A virtuous response to a crisis by the organization’s leaders may be the most effective in generating support and renewal.    In what ways was the response by Schwan’s virtuous? Lesson 10: Leaders have specific communication obligations for managing and learning from crises.    How did Schwan’s manage the communication obligations following the crisis? Did learning take place? SUMMARY The Schwan’s salmonella crisis is a classic case of effective crisis communication. It is interesting that the company based its response not on a long and detailed crisis plan but on a guiding philosophy. From this philosophy, Schwan’s immediately took responsibility for the crisis and worked to repair relationships with its customers. Schwan’s received a tremendous amount of support from its customers following the crisis for its response even though many of its consumers became very ill as a result of the salmonella infection. Schwan’s had several opportunities to shift the blame outside the organization. However, the company was determined to take care of its customers and move beyond the crisis.