Public relations

WHEN THE BUBBLE BURST. (Poor Management of Benzene Contamination Crisis by Perrier Group America Inc. and Source Perrier S.A.) 08/03/1991 The Economist Copyright Economist Newspaper Ltd. (UK) 1991

Our new series of management briefs uses five case studies to highlight how managers have handled, or mishandled, some of the big issues facing their companies. Our first brief looks at the events of early 1990, when traces of benzene were found in bottles of Perrier water. The French firm's response proved as damaging as the original contamination

UNTIL January last year laboratory workers at the Mecklenburg County Environmental Protection Department in Charlotte, North Carolina, made a regular pilgrimage to their local supermarket to buy two or three bottles of Perrier, a leading brand of sparkling mineral water. The scientists needed purified water to dilute substances they were testing for hazardous chemicals; buying Perrier was simpler than making their own. But on January 19th a biologist at the laboratory spotted an unusual reading on his mass spectrometer: something was corrupting his sample.

As Perrier had been an unfailingly reliable source, James Ward, the laboratory's director, was sure his equipment was to blame. But after spending two days checking everything from the spectrometer to utensils, the scientists went shopping for Perrier again. Another eight bottles were tested. Each one contained minute quantities of benzene, an industrial solvent-and a carcinogen. It was a discovery that was to prove costly to Source Perrier, the mineral water's French manufacturer. Within weeks it had withdrawn every bottle from worldwide circulation-160m in all-at a total cost now estimated at up to $200m.

Perrier did not get to hear of the problem until the Mecklenburg laboratory's findings had been confirmed by both American state and federal officials. There seemed little cause for haste. The concentrations of benzene found in the Perrier varied between 12.3 and 19.9 parts per billion-well above the limit of five parts per billion specified by America's Food and Drug Administration (FDA), but far below the sort of levels that might endanger health. A cup of nonfreeze-dried decaffeinated coffee contains more benzene.

Nonetheless, when Perrier Group of America was told of the problem in early February 1990, it moved fast, recalling over 70m bottles from North American shops and restaurants. But it also broke the first rule of crisis management: don't play the problem down. Before it even knew the source of the benzene contamination, Perrier's American arm was confidently announcing that the contamination was limited to North America.

In France, however, Source Perrier was making more far-reaching errors. At first, it reacted decisively, halting global bottling of the sparkling water that made up 14% of its FFr13.6 billion ($2.5 billion) sales in 1990 (all told, Perrier water and the company's other mineral waters-from different springs-accounted for 60% of Source Perrier's 1990 revenues). But then it started breaking every rule in the book.

On February 11th, two days after the crisis had broken, a Source Perrier spokesman announced that the source of the benzene was a cleaning fluid mistakenly used on the bottling line that served the North American market; the machine in question had now been cleaned and repaired. Independent tests, said Perrier, showed that the natural source of Perrier water, at Vergeze in the south of France, was unaffected by any pollutants. This was a claim that was later to return to haunt Perrier.

It was also, to say the least, a little disingenuous: in reality, Source Perrier still had no idea where the contamination at its 36-hectare Vergeze plant was coming from. Less than three days later it discovered the real cause. Company employees had failed to replace charcoal filters used to screen out impurities in the natural gas that was present in the Perrier spring. Six months-worth of production was affected, covering Perrier's entire global market. The firm had to change its story.

In Paris Source Perrier still did not seem to have grasped the enormity of its problem. A press conference called for February 14th-five days after the story broke-was held in a room too small to hold the hoards of journalists covering the story. With refreshing tactlessness, Perrier water was served. Gustave Leven, the firm's 75-year-old chairman, announced a global withdrawal of the water, but was at pains to make light of the problem. When asked why Perrier had expanded its recall, Mr Leven, in a reference to one of Perrier's French ads, quipped "Perrier is crazy!" "All this publicity helps build the brand's renown," chipped in Frederik Zimmer, president of Perrier's international division.

More worryingly, Mr Zimmer observed that Perrier water "naturally contains several gases, including benzene. Those have to be filtered out." But if the company was actively filtering benzene, surely the filtration plant was the obvious place to look for contamination?

The revelation that benzene was present in the spring was a disaster. Mineral water is an odd product. As with petrol (which is only two-thirds the price of Perrier), most consumers have difficulty telling one brand from another. With such weak product differentiation, the strength of the brand is everything.

Perrier's brand, the world leader, was-like rival brands-built on purity. In the health-conscious 1980s, the supposed purity of mineral waters whether sparkling or still-was the main reason why the world market for bottled water grew at 3040% a year. As Tom Pirko, president of Bevmark, an American drinks consultancy, put it at the time Perrier's troubles began: "The last possible thing that Perrier can afford to have happen is for the public to think there is benzene in their spring, whether it gets filtered out or not." Particularly in America, where the company's advertising slogan was "It's perfect. It’s Perrier."

Oh No, No Eau

From the outset, Perrier's was an odd sort of corporate crisis. Although it was only the second global withdrawal of a brand (the first was Johnson al Johnson’s withdrawal of its Tylenol pain-killer in 1986 when, for the second time, some capsules were deliberately laced with cyanide), it was the first not to be caused by malicious tampering. But as Stephen Greyser, a professor at Harvard Business School, points out, when a product problem is of a firm's own making-as Perrier's was-consumers can be less forgiving. Second, unlike the Tylenol incidents in 1982 and 1986, which resulted in a total of eight deaths, Perrier's problem posed no real health risk.

To a Perrier drinker who did not read newspapers, watch television or listen to the radio, Perrier's response to the crisis would have seemed perfect: it withdrew the product swiftly, cleared up the problem and reintroduced the product within weeks. But because Source Perrier in France frimbled its initial explanations so badly, the company got a rotten press worldwide. Could it have done better?

Source Perrier need riot have looked far for an exemplar. Wenche Marshall Foster, Norwegian-born chairman of Perrier's British subsidiary, had realised years earlier that Perrier would stand or fall by its brand's purity and quality; she had also been horrified by the Tylenol scare. So in 1985 Mrs Marshall Foster put together a four-strong crisis-management team: Daphne Barrett, head of Infoplan, a public-relations agency; Peter Thomas, Perrier (UK)'S marketing director; Richard Wheatly, chairman of Leo Burnett, Perrier's British advertising agency; and herself In the event of a crisis, only these four were to talk to Perrier's "constituents" (employees, customers, shareholders, regulators and suppliers), the media and other affected parties.

While Source Perrier in Paris got its relations with the outside world dreadfully wrong in the first few days of the nightmare Perrier (UK) stuck doggedly to its crisis-management plan. The team was to be found in Perrier's London offices for days after the saga began, talking to everyone affected by the problem. No press conference was held: Mrs Marshall Foster talked to journalists individually. Until the team was sure of the cause of the contamination it candidly confessed that it did not know what had happened--rule two in the crisis-management handbook. Journalists covering the story say they were impressed with the firm's candour.

Perrier (UK) also twigged at an early stage that the presence of a carcinogen in its water, no matter how small its quantity, would frighten customers. To reassure Perrier drinkers, the company took out full-page advertisements in the British press, stating that there was "no hazard to health". But there was no international co-ordination: in no other markets did Perrier run explanatory advertisements. Nor did it, in any market, apologise to its customers. Only when Perrier started running global relaunch ads, in March 1990, did a halfhearted hint of contrition creep in: American relaunch ads conceded that "for a product known for purity, {the problem} was definitely a mistake."

It was a mistake that would run and run. Once a product crisis has broken, the company concerned tends to be put under the microscope-as Perrier soon discovered. After the initial shock of discovering benzene in its water, Perrier was beset by aftershocks. In Britain, finding herself with 40m unwanted bottles of mineral water to dispose of, Mrs Marshall Foster spent days arranging for the glass to be recycled. Eventually she triumphantly announced that half of the bottles would be recycled--only to be pilloried by Friends of the Earth for not recycling the other half. After a further struggle she arranged for all 40m bottles (along with caps and other packaging) to be recycled, a tall order in Britain, where there is little call for green glass. The water was-after local authorities were reassured about its safety-simply poured away.

Nor was Perrier's staggered relaunch, starting in early March 1990, without incident. in midApril, a week before Perrier was due back on sale in America, the FDA ruled that the claim on the mineral water's label that it was naturally sparkling" was false, on the grounds that the gas and the water were taken out of the ground separately: the carbonation, said the F DA, was thus artificial. The F DA also objected to the label's claim that Perrier was calorie free"-water, after all, usually is. Perrier gave in on both counts. Then, on the eve of Perrier's American relaunch, New York's Centre for Environmental Health objected to the term "sodium free" on Perrier's label, on the grounds that some bottles, when tested, had marginally exceeded FDA limits.

Perrier's $25m American relaunch ad campaign four times the amount the firm spent on advertising in America in the whole of 1989) also came in for criticism. Its radio ads, featuring Jill Purity", a fictional reporter for the "Perrier News Network", were castigated for making light of the benzene incident. Terry Hill, a director of Burson-Marsteller, the PR agency which helped develop the campaign, predictably took a different view when interviewed at the time: "This is just not serious. It’s nothing that's going to cause widows." But Perrier might have done better to take the advice of Adweek magazine and go for a more direct relaunch campaign. Adweek's suggestion-"Perrier. The benzene's gone, was at least to the point.

The Sleau Road Back

In a booming market that it had largely created, Perrier's share was being squeezed by old rivals and newcomers alike well before the benzene crisis broke. Because the market was growing so rapidly, however, Source Perrier's sales were still rising steadily, reaching FFr16.7 billion in 1989. Last year's 18% fall in turnover was accompanied by a 21% decline in the group's operating profits, to FFr1.1 billion. Source Perrier's share price was also battered by the crisis, falling by one-third by the end of 1990. The mishandling of the early days of the incident cost the ageing Mr Leven, Source Perrier's chairman and founder, his job. In June 1990 he was replaced by Jacques Vincent, the company's vice-chairman.

But the lasting legacy of the benzene affair shows up most clearly in Perrier's withered market shares. Deprived of Perrier for at least six weeks, water drinkers started to discover other brands-and found they were little different. In America, Perrier's biggest overseas market, a 13% pre-crisis share of the take-home market for sparkling waters has been cut to 9%. In Britain Perrier's take-home market share has tumbled from 49% to under 30%. Only in France has Perrier held on to its pre-crisis market share of around 38%. Last year that dipped slightly, to 34%.

Perrier reckons it has learnt several (costly) lessons from the affair. Foremost is a need for coordination the instant a crisis breaks. Perrier's biggest mistake in the days immediately after the benzene story hit the headlines was the inconsistency in-and lack of credibility of-the stories it was telling the media. Perrier admits to being staggered by the speed with which the affair spiralled out of the company's control-many of its trade customers found out about the benzene scare from the press. That allowed rumours to spread about the cause of the contamination.

Perrier had prided itself on being a highly decentralised company, with each of its subsidiaries operating autonomously. That is still true, but it has now put an international marketing strategy in place and says it is working on" an international crisis-management strategy-although Perrier (UK) is hanging on to its own crisis-management team for now.

Perrier says it is pleased with the way its brand has withstood the crisis: without this underlying strength-what Mrs Marshall Foster describes as "public warmth" towards the Perrier brand-the company would have been sunk. That Perrier, like "Hoover" and "Walkman", had become something like a generic brand (consumers often ask for a Perrier when what they really want is any sparkling water) helped it weather the storm. But the crisis may have damaged Perrier's long-term ability to remain the Hoover of mineral water.

If what Perrier should have done in the first days of the crisis now seems so clear, why was it so hard to do at the time? Writing in Prism a journal published by Arthur D. Little, a management consulting firm, Ashok Kalelkar and John Magee point out one key reason: managers tend to be wrong-footed by corporate crises because they are used to shaping events, not to having events grasp control and shape them. Once it had regained control of the affair-a week-long struggle-Perrier did most things right. But it would all have been a lot easier had each part of the company been pouring from the same bottle at the outset.