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Odwalla Inc.
Company typePrivate (subsidiary of Coca-Cola)
IndustryConsumer Products
FoundedSanta Cruz, U.S.A. (1980)
FounderGreg Steltenpohl
Gerry Percy
Bonnie Bassett
HeadquartersHalf Moon Bay, California, U.S.A.
Area served
Western United States
Key people
Steven M. McCormick, COO and General Manager
James R. Steichen, SVP Finance and CFO
Chris Brandt, Director Brand
ProductsDrinks, Food bars
RevenueUS$187.9 million (2007)
Number of employees
900[1]
ParentCoca-Cola
WebsiteOdwalla.com

Odwalla Inc. (pronounced Oh-dwa-la)[1] is a health food company founded in Santa Cruz, California in 1980 that sells fruit juice and food bars. Currently, Odwalla is headquartered in Half Moon Bay, California, and its production facility is located in Dinuba, California. The name "Odwalla" was taken from that of a character in the song "Illistrum" written by the Art Ensemble of Chicago jazz group as a metaphor for their company.

The company has experienced strong growth from its incorporation in 1985, expanding out from California to cover many parts of the United States and Canada. However, a period of decline occurred as a result of an outbreak of E. Coli bacteria in their apple juice in 1996. A recall was issued by the company, and Odwalla experienced a ninety percent reduction in sales following the event. The company gradually recovered, and, after a few years, the company was making a profit again. While originally it was a publicly traded company, Odwalla was acquired by the Coca-Cola Company in 2001 for US$181 million.

The Odwalla brand includes "day-of-juicing quality" juices, smoothies, dairy-free soy milk, and similar organic beverages, as well as several flavors of energy bars, known as food bars, and bottled spring water.[2][3] While Odwalla originally sold unpasteurized juices (because the process of pasteurization alters the flavor of juice),[4] following the E. Coli outbreak Odwalla adopted flash pasteurization and other safety procedures.

History

Origin

Odwalla is a health food company that was founded in Santa Cruz, California in 1980 by Greg Steltenpohl, Gerry Percy, and Bonnie Bassett.[4][5] The three wanted to contribute to the community while earning money,[6] although they did not have a lot of money to invest. They came up with the idea of selling fruit juices from a business guidebook, and the trio began by squeezing orange juice with a secondhand juicer in a shed in Steltenpohl's backyard. They sold their product from the back of a 1968 Volkswagen van to local restaurants,[4] employing slogans such as "soil to soul, people to planet and nourishing the body whole".[7]

The name for their start-up, "Odwalla", was taken from that of a character who guided "the people of the sun" out of the "gray haze" in the song-poem "Illistrum", a favorite of the founders, which was performed by the Art Ensemble of Chicago jazz group.[8] Steltenpohl, Percy, and Bassett related this to their products, which, they believe, "help humans break free from the dull mass of over-processed foods so prevalent today".[6]

Incorporation–1996

The headquarters of Odwalla Inc. in Half Moon Bay, California.

The founders' small business was incorporated in September 1985 after five years of growth,[5] and expanded to sell products in San Francisco in 1988. Hambrecht & Quist Inc., a venture capital firm in San Francisco, was one of Odwalla's main investors at the time, investing several million dollars in the company.[8] By 1992 the company employed 80 people at their company headquarters in Davenport, California and sold around 20 different flavors of juice for between $1.50 and $2.00 a pint. Odwalla went public in December 1993, and the company had 35 delivery trucks, almost 200 employees, and made about $13 million a year. Soon afterwards, the company expanded into new markets when it bought two companies in the Pacific Northwest and Denver, Colorado.[4]

Odwalla Inc. built a new production facility at 1765 E. Davis Drive in Dinuba, California in 1994 in order to better meet production demands.[9] The following year, the company moved its headquarters to 120 Stone Pine Road in Half Moon Bay, California.[4][10]

Continual growth and outside investments during the early years of the company allowed the company to expand and grow: in 1991, Odwalla's revenue was $9 million, but five years later, Odwalla Inc. made $59 million in sales. This strong growth made the company one of the largest fresh-juice companies in America in 1996,[11] when Odwalla was selling their products to stores in seven states and some parts of Canada.[5][12] It was estimated that the company would reach $100 million in sales by 1999.[4][8]

1996 E. coli outbreak

Safety issues prior to the outbreak

The Odwalla plant had several minor food safety issues, many of which arose because Odwalla did not pasteurize its juice.[11] Tests discovered low levels of listeria monocytogenes, a pathogen that can harm pregnant women, at the Odwalla factory in 1995.[13] In response, the company spent several million dollars to upgrade the plant's safety features, and bacteria levels were reduced to "relatively low levels".[11]

The next year, Dave Stevenson, Odwalla's technical services director who oversaw quality assurance, suggested that Odwalla add a chlorine rinse to guard against bacteria on the skin of processed fruit, supplementing its existing phosphoric acid wash process. However, this plan was dropped by Chip Bettle, Odwalla's senior vice president, who feared that the chemicals would harm the fruit and alter the flavor of the juice.[11][14]

In a letter to The New York Times written on January 5, 1998, Odwalla's Director of Communications, Christopher C. Gallagher, wrote that "Odwalla continuously upgraded its manufacturing process in the period leading up to the recall. Moreover, our primary indicator of overall quality was daily bacteria-level readings, which were relatively low and decreasing in apple juice".[15]

Outbreak and subsequent recall

E. Coli 1057:H7

On October 30, 1996, health officials from the state of Washington informed Odwalla that they had found a link between an outbreak of the E. coli O157:H7 bacterium and a batch of Odwalla's fresh apple juice produced on October 7. This was confirmed on November 5, and may have resulted from using rotten fruit; one account tells of fruit being used that was highly decayed.[11] Another possible source of contamination was fallen apples ("grounders"), that had come into contact with animal feces and not been properly cleaned.[16][17] Confirmation that the bacteria came from outside the factory was provided when an inspection on November 15 found no evidence of E. Coli contamination in the facility.[12] The outbreak came as a surprise—the plant had been inspected by the F.D.A. three months earlier, and Odwalla supervisors were not aware that the E. Coli bacteria could grow in acidic, chilled apple juice.[11] Despite this, in cooperation with the F.D.A., on October 30 Odwalla's Chief Executive Officer Stephen Williamson voluntarily recalled 13 products which contained apple juice from about 4,600 stores.[18] Carrot and vegetable juices were also recalled the following day as a precautionary measure, since they were processed on the same line.[5][12] The recall cost the company $65 million and took around 48 hours to complete,[19][20] with almost 200 trucks being dispatched to collect the recalled products. Odwalla opened a website and a call center to handle consumer questions about the recall.[12]

As a result of the outbreak one toddler, 16-month-old Anna Gimmestad from Denver, Colorado, died from kidney failure,[16] and at least 66 people became sick.[21] Fourteen children were hospitalized with hemolytic uremic syndrome, a severe kidney and blood disorder, and were, according to doctors, "likely to have permanent kidney damage and other lasting problems".[11] In consequence, Odwalla stock fell by forty percent and sales of their products dropped by ninety percent.[4][22] The company laid off 50 workers, and, at the end of the fiscal year, posted a loss of $11.3 million.[4][5]

The outbreak occurred because Odwalla sold unpasteurized fruit juices,[14] even though pasteurization had long been standard in the juice industry,[23] claiming that the process of pasteurization alters the flavor and destroys at least 30% of nutrients and enzymes in fruit juice.[14] Instead, Odwalla relied on washing usable fruit with sanitizing chemicals before pressing. Because of the lack of pasteurization and numerous other flaws in their safety practices (one inspector claimed that Odwalla's safety procedures were so poorly maintained that they were breeding bacteria in "black rotten crud"),[11] the company was charged with 16 counts of distributing adulterated juice. Odwalla pled guilty,[21][24] and was fined $1.5 million: the largest penalty in a food poisoning case in the United States. With the judge's permission, Odwalla donated $250,000 of the $1.5 million to fund research in preventing food-borne illnesses.[25] In addition, the company spent roughly another $12 million settling about a dozen lawsuits from families whose children were infected.[26]

To boost sales following the recall, Odwalla reformulated five products to remove their apple juice content, and released them in November 1996.[5] Flash pasteurization was introduced to the manufacturing process, and the juices reappeared on store shelves on December 5, 1996. Some experts have praised Odwalla's new system as being "the most comprehensive quality control and safety system in the fresh juice industry".[19]

1997–Current

A bottle of Odwalla Future Shake

Despite a net loss for most of 1997, Odwalla worked hard to rehabilitate its brand name. In addition to advertising their new safety procedures, Odwalla released a food bar (their first solid food product) and entered the $900 million fruit bar market.[27] Another new product was the Future Shake, a "liquid lunch" aimed at younger consumers. Because of these efforts, Odwalla was again profitable by the end of 1997, reporting a profit of $140,000 for the third quarter.[4]

Having recovered, the company worked to expand geographically into markets like Philadelphia, Washington, D.C., Chicago, Detroit, and Minneapolis, and by the end of 1998 reported a $59.1 million profit.[4] Growth continued over subsequent years,[28][29] in part through the $29 million acquisition of Fresh Samantha, a large juice company based in Saco, Maine, in 2000.[30][3][31] This allowed Odwalla to expand into additional East Coast markets, but incurred high transportation costs as products had to be shipped across the United States from California. To address this problem the company announced plans to build a second production facility in Palm Beach County, Florida. However, facing difficulties in obtaining building permits and allocating sufficient funds, the project was first delayed and eventually cancelled.[3][32] Odwalla sold products under both its own and the Fresh Samantha brand names for a few years, until phasing out Fresh Samantha in 2003.[31][33]

Odwalla was purchased by the Coca-Cola Company in 2001 for $15.25 a share, a deal which totalled $181 million and was unanimously approved by the Odwalla board of directors.[3][34][35][36] Under the terms of the merger, Odwalla's management stayed on as heads of the company, and it was "folded" into Coca-Cola's Minute Maid department.[37] The acquisition was one of several similar mergers which were aimed at expanding Coca-Cola's reach to non-carbonated drinks.[38][39]

Odwalla continued to grow following the acquisition, partly because of Coca-Cola's well-established distribution network,[39] and partly due to new product releases. These included a line of PomaGrand pomegranate juice (released at the 2006 Sundance Film Festival),[7] two flavors of energy drinks,[40] and three flavors of "Soy Smart" drinks, which contain soy protein, omega-3 fatty acids, and calcium.[41][42]

Coca-Cola promoted Odwalla products in 2006 when the company aimed at replacing its carbonated soda products with healthy alternatives in schools.[43] Odwalla continued to have good growth in 2007, when Coca-Cola, squeezed by poor growth in its North American markets, issued a company-wide hiring freeze; Odwalla, because of its good performance, was one of the few exceptions to the rule.[44]

Production

A refrigerated Odwalla display case at a grocery store. Odwalla use of special display cases like this allows the company to increase their products' visibility.

Odwalla uses "fresh-sourced" produce (fruits and vegetables that have recently been harvested) to make many of their products,[5][45] as well as organic oats for food bars and certain tropical fruits in a frozen purée form, purchased from an outside source and blended with fruit juice.[3][5] Because Odwalla uses fresh produce, some juices are "seasonal" and are only available when certain ingredients are in season.[46][47] Fruit availability and price is also affected by adverse weather, disease, and natural disasters.[3] Throughout the year, Odwalla juice colors and flavors change slightly because different types of fruit are used.[2][45]

After the E. Coli outbreak, Odwalla improved the safety of several of their production processes. Before the fruit enters the factory, it is washed, sorted and sanitized. Once it has reached the plant, the apples, carrots, and citrus fruits are separated and washed again. The fruit is pressed to get the juice, flash pasteurized, and bottled.[45][48] A sample undergoes quality testing, and, if it passes, the batch is shipped in refrigerated trucks to various distribution centers in the United States.[3][45] Odwalla juice has a relatively short shelf life compared to other beverages and thus must be refrigerated. However, after the introduction of flash pasteurization in 1996 and a new plastic bottle in 2001, the shelf life has been considerably extended.[3][5][11] Generally, Odwalla products are sold in special Odwalla-brand displays at grocery and convenience stores, instead of being intermixed with other products.[3][7]

Products

Drinks

Odwalla Inc. produces many flavors of fruit and vegetable drinks, as well as dairy-free soy milk (marketed under the "Soy Smart" name),[3][41] "PomaGrand" pomegranate juice,[7] "Serious Energy" caffeinated fruit juice,[40][49] bottled spring water,[5] and Odwalla's Superfood smoothie line of products, which are viewed as the core products of the company and are made of various fruit purées, wheat grass, and barley grass.[7][50] These products accounted for roughly ninety-five percent of Odwalla's revenue in 2001.[3]

A box of Banana Nut bars and two Chocolate Chip Protein bars.

Odwalla juice is sold in individual 450 millilitres (15 US fl oz) bottles made of recyclable HDPE plastic,[3] as well as larger 64 US fluid ounces (1.9 L) containers.[47][50][51] Odwalla's juice, because of production costs, is "typically sold at prices higher than most other juice products", and the price of the juice can vary over time because of weather or disease affecting the supply of fruit and vegetables.[5]

Throughout its history, Odwalla has produced and subsequently withdrawn various juice flavors because they were less popular, including the Odwalla Superfood Amazing Purple,[52] Soy Vanilla,[53] and Pomagranate Mango drinks.[10]

Food bars

In 1998, Odwalla began to sell energy bars made with fruit and grains, named food bars,[54] as an alternative to their drinks in an attempt to raise revenue following the 1996 E. Coli outbreak.[4] The first three flavors released were Cranberry Citrus, Organic Carrot & Raisin, and Peach Crunch, all three of which are now discontinued.[27] In 2001, food bars accounted for less than five percent of Odwalla's revenue.[3]

References

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  2. ^ a b "Quarterly Report Form 10-Q" (Press release). Odwalla Inc. 1997-11-29. Retrieved 2008-08-20.
  3. ^ a b c d e f g h i j k l m "Annual Report Form 10-K" (Press release). Odwalla Inc. 2001-09-01. Retrieved 2008-08-20.
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