supply Chain management

Nestlé Purina PetCare: Your Pet, Our Poison

Abstract

The pet food poisoning scare of 2007, in which numerous pet food products were contaminated with melamine sourced from China, seriously damaged many of the afflicted firms’ reputations for safety and customer concern. Pet food industry leader Nestlé Purina released two unapologetic statements revealing limited information about the source of the problem and its impact on consumers. Purina must recover its customers’ collective faith; a difficult task after causing thousands of “deaths in the family.” It is also essential that Purina restructure its supply chain to ensure that history does not repeat itself.

Case

On March 16, 2007, Nestlé Purina PetCare Company announced by press release the voluntary recall of 5.3-ounce Mighty Dog brand pouch products produced between December 3, 2006, and March 14, 2007. 1 The recall came just hours after a product recall by Menu Foods, one of Nestlé Purina’s suppliers. Nestlé Purina’s press release included information on how to determine whether a specific item was affected by the recall and the manner in which customers could seek reimbursement for recalled products. The company apologized for the inconvenience while simultaneously assuring customers the recall was strictly precautionary. Purina insisted there was no indication of any actual product quality issues and that Menu’s recall did not affect other Purina products.

The Beginning: Menu Foods Recall

Menu Foods issued its March 16 recall following more than three weeks of customer complaints. 2 The voluntary recall, one of the largest product recalls in North American history, extended to 53 brands of dog food and 42 brands of cat food, as well as a number of brands designed for aquatic animals. The brands affected by the recall represented more than one percent of all pet food sold in the United States. 3

The impetus for the Menu Foods recall, however, was not customer complaints. In actuality, company testing resulted in sickness, and ultimately death, in a number of test animals. 4 The only information provided to customers in the recall, though, was that an undisclosed number of test animals suffered kidney failure. Armed with this limited information, manufacturers were left to determine appropriate action. Soon after, several media reports emerged highlighting numerous kidney-failure-related domestic animal deaths. Each case was connected to the others by a common theme: the pets all became sick following consumption of Menu Foods products. Online databases self-reported as many as 3,600 pet deaths by April 11, 2007. 5

History of Menu Foods

Located in Ontario, Canada, Menu Foods was founded in 2002. It is a relatively small company, with a market cap of $20 million USD. Despite its relatively small size, the company’s facilities produce over one billion containers of pet food annually, for 17 of the top 20 North American retailers, and five of the top six branded companies.

Menu Foods operates under a low cost, flexible manufacturing platform, allowing the company to provide pet food products at lower prices. Pursuant to this platform, shortly before the March 16 recall the company engaged the services of a Las Vegas-based ingredients broker named ChemNutra, Inc. who, at the time, imported wheat gluten from a Chinese company, Xuzhou Anying Biologic Technology Development Company. 6 In its initial recall, Menu Foods acknowledged that the timing of customers’ complaints coincided with the introduction of an ingredient from a new supplier. The recall extended to canine, feline, and aquatic pet food manufactured between November 8, 2006, and March 6, 2007, 7 the period over which ChemNutra, Inc.—and by extension, Menu Foods—maintained a relationship with Xuzhou Anying Biologic Technology Development Company. 8

History of Purina

Based in St. Louis, Missouri, Purina was originally created in 1894 by William H. Danforth as a horse and mule feed manufacturer. By 1933, the company was well known in the pet food industry, recognized by its Dog Chow Checkers dog food brand. The corporation matured into one of the top 250 corporations in America, valued at $10.3 billion USD, before being purchased by Nestlé in January of 2001. Both companies saw the acquisition as an ideal strategic transaction; an opportunity to benefit from combined know-how, complementary strengths, and an international presence in the growing pet care market. The acquisition was also thematic with Nestlé’s strategic initiative to develop its pet care division, subsequent to the 1985 acquisition of Friskies with Carnation.

On March 16, 2007, just hours after the Menu Foods recall, Nestlé Purina issued its own press release and limited recall. In this press release, Purina described its relationship with Menu Foods as nonmaterial, thus limiting the scope of the contamination among Purina products. Purina assured consumers that Menu Foods was contracted only for Mighty Dog pouch products, and only because Purina lacked the capacity to produce wet dog food pouch packaging. 9

The Pet Food Industry

Purina’s main competition at the time of the recall included Procter & Gamble, Mars, Colgate-Palmolive, Delmonte Foods, Agrolimen SA, and Nutro. Still, Purina maintained a significant lead in market share. 10 Ultimately, products from all six of Purina’s main competitors were affected by the recall. This had major implications for the industry as a whole, as 30% of pet owners surveyed responded they changed their pet food purchases following the 2007 recall. 11

In 2007, most pet food producers employed highly convoluted supply chains. It was common for manufacturers to purchase inputs from many small suppliers worldwide and merge them into the final product at their respective manufacturing plants. The primary concern with this type of supply chain is one of quality control. Company officials struggled to determine where exactly inputs originated, and they expended even more energy ensuring inputs met quality standards. In March 2007, the pet food industry as a whole lacked solid quality controls.

The Cause of the Poisoning

By March 21, 2007, five days after the initial recall, Menu Foods confirmed that wheat gluten used to enrich the gravy in wet pet foods was the source of the renal failure seen in test subjects. 12 But it was still unknown what specific contaminant caused the renal failure. Two days later, on March 23, 2007, the New York State Lab reported that the wheat gluten was tainted with rat poison. 13 The FDA deemed this report inaccurate on March 27, 14 and on March 30, the agency announced that melamine was the source of the contamination. 15

Melamine

Melamine is an organic base with fire retardant properties. The chemical’s qualities make it an oft-used component in a variety of plastics, adhesives (glues), and pigments. This usage encompasses roles in everything from textiles to high-resistance concrete. 16 Though there are now less expensive and more effective options, melamine was also formerly used as an ingredient in fertilizers. Melamine is sometimes intentionally added to food products to increase apparent protein content.

Because melamine is also a pesticide, melamine testing may be used to check products for pesticide contamination. This explains the initial confusion surrounding the findings of the New York State Lab. Typically, when melamine residue is found during routine testing, it is interpreted as an indication of pesticide contamination; the food must still be destroyed immediately, but melamine is not labeled as the contaminant. 17

When ingested in sufficient dosage—the World Health Organization estimates more than two milligrams per kilogram of body weight may be fatally toxic to humans—melamine is linked to kidney failure, bladder cancer, reproductive damage, and acute renal failure. The chemical is also considered a harmful irritant to skin and mucus membranes. Studies replicated in cats and rats have yielded the same toxicity profile. Due to the chemical’s toxicity, the U.S. limits the food presence of melamine to 2.5 parts per million.

Nonetheless, according to 2007 New York Times reporting, the use of “melamine scraps” to create an illusion of high protein content in animal feed is a common practice among Chinese manufacturers. With an extensive surplus in melamine production, many of China’s producers even market the chemical for use in animal (and human) consumption products. Wheat gluten used by Menu Foods and other pet food producers was contaminated with melamine sourced to the Xuzhou Anying Biologic Technology laboratory in China. This substitution was likely a primary factor in the Chinese company’s ability to significantly undercut the prices offered by European suppliers of wheat gluten.

Purina’s Response

Purina’s March 16, 2007, press release was communicated with a brief statement to the press and a message on the company website. 18 The company was criticized for the vague nature of the release, but this may be at least partially attributable to the lack of information provided to them in the Menu Foods recall. Two weeks later, on March 30, 2007, Purina issued a second recall. 19 Despite the company’s earlier claim limiting the possible contamination to Mighty Dog pouch products, the March 30 recall included all varieties of Alpo wet dog food. In total, more than a dozen Purina product lines were affected by the melamine poisoning. As it happened, the same company supplying wheat gluten to Menu Foods, Xuzhou Anying Biologic Technology Development Company, directly supplied wheat gluten for the additional products to Purina. The contamination was limited, occurring in only one of Purina’s 17 manufacturing facilities.

In response to concerns regarding melamine contamination, Purina voluntarily ceased its partnership with Menu Foods. The company also voluntarily tested 100% of its products containing wheat gluten for the presence of the toxic chemical. 20 In the March 30 press release, communicated in the same manner as the first, Purina also assured customers that the recall did not affect Purina dry pet foods. The company also made it clear that its actions in this matter were completely voluntary.

Public Response

On March 20, 2007, just four days after the Menu Foods recall, the first lawsuit was filed. Dawn Majerczyk of Chicago, Illinois, filed the suit after her cat suffered fatal organ failure upon consumption of a single pouch of Special Kitty cat food. 21 Mars, one of Purina’s major competitors, manufactured this particular brand of cat food. On September 5, 2007, a substantial claim was filed against several defendants, specifically naming Nestlé Purina. This suit was filed in response to the deaths of two Bichon Frise show dogs. 22 On average, the cost of treatment for a pet suffering melamine poisoning is $925. 23 It is estimated that, in total, consumers suffered $20 million in damages overall. 24 To date, a total of 170 lawsuits have been filed in relation to the melamine poisoning. 25 This includes all lawsuits filed against Menu Foods, Nestlé Purina, and the pet food industry as a whole.

The pet food industry’s communication throughout the melamine-poisoning crisis was harshly criticized. Beginning with the press releases issued March 16, 2007, the general consensus was that the public did not have access to relevant information, and therefore was not positioned well to protect their pets. Beyond the lack of relevant information revealed in vague company press releases, the medium via which information was made available was also criticized. Most information regarding the poisoning and the subsequent recalls was made available through company websites, rather than traditional mass media like television, print, and radio. On April 9, 2007, Forbes magazine printed an article addressing just this issue. In the article, Forbes condemned the pet food industry as a whole, and Purina specifically, for their insufficient communication in this matter. 26

The American public was outraged by the melamine-poisoning crisis. Consumers demanded a government response, increasing pet food industry regulation. They felt betrayed that the industry would risk the lives of their beloved pets in the interest of increasing margins. Furthermore, once aware of the poisoning, consumers felt betrayed that the pet food companies did little to communicate critical details, and were generally unapologetic. An additional point of interest which further incited the public: on February 26, 2007, just weeks prior to the March 16 Menu Foods recall, Menu Food’s chief financial officer released 50% of his company stock holdings. He declared this a “horrible coincidence.” 27

Government Response in the United States

As previously stated, the American public was outraged by the pet food contamination crisis. Following the recalls, consumers demanded increased government regulation of the pet food industry; the industry was historically self-regulated by pet food manufacturers themselves. On April 12, 2007, in response to the public outcry, the United States Senate held an oversight hearing to determine the appropriate next steps. 28 To date, no specific regulation has been created, but in July of 2007, the Food and Drug Administration did receive increased governance and budget in response to several food safety issues including the pet food recall. 29 The financial injection was deemed necessary to broaden the agency’s available resources.

On April 26, 2007, just over a month after the Menu Foods recall, the Food and Drug Administration banned all imports from Xuzhou Anying Biologic Technology Development Company, and announced its intent to inspect 100% of all Chinese wheat gluten offered for import. 30 These inspections would take place regardless of the specific supplier. Additionally, the agency sent official inspectors to China to investigate companies that exported contaminated food to the United States. 31 On May 10, 2007, these inspectors returned empty handed. The companies in question had been shut down, their facilities emptied, and grounds sanitized. No evidence was obtained.

Government Response in China

On April 26, 2007, the same day that the United States Food and Drug Administration banned all imports from Xuzhou Anying Biologic Technology Development Company, the Chinese Foreign Ministry banned the use of melamine in all food products. 32 The government also publicly admitted that food products containing melamine had cleared customs. At the same time, however, the Chinese government adamantly disputed the role of melamine in the pet deaths. They vowed to cooperate with United States investigators to locate the “real cause” of the pet deaths.

On May 10, 2007, Chinese correspondents announced that officials from the companies involved in the pet food poisoning were detained, in cooperation with the United States’ investigation. 33 United States Food Safety Czar David Acheson issued a statement indicating that United States investigators in China had “received good cooperation and support from Chinese authorities.” 34 However, this was the same day that Food and Drug Administration investigators discovered empty buildings in place of company operating facilities. Agency investigators were eager to question the company officials. Unfortunately, as with the operating facilities, investigators found no evidence that the supposedly detained officials existed, past or present. 35

Finally, on May 29, 2007, Head of the Chinese State Food and Drug Administration Zheng Xiaoyu was sentenced to death for corruption and, more specifically, accepting bribes. 36 In addition to his conviction, Zheng’s wife and son came under investigation for their possible connection to his bribe collection. In total, Zheng’s bribes amounted to almost $850,000. The unusually harsh sentence was intended to convey the government’s commitment to eliminating government corruption. Speculation circulated as to whether or not American companies were aware of the use of melamine by Chinese suppliers; unsatisfied, suffering pet owners continued to seek answers from the corporations that actually sold the poisoned pet food.

Discussion Questions

· 1.Will this incident alter the pet food industry, and if so, in what ways?

· 2.Was Purina’s communication strategy appropriate and adequate?

· 3.If not, what action do you now recommend Purina take?

· 4.Could better industry regulation by the United States government prevent similar product safety incidents in the future?

· 5.Can Purina regain its reputation?

· 6.What moral/ethical considerations will impact Purina’s actions?