November/December 1999

How "Jack" Turned Crisis Into Opportunity

"It was like a death in the family," recalls Terry Herrick, who owned two area Jack in the Box restaurants, one in Agoura Hills and another in Santa Paula, in 1993, when a bacteria epidemic killed three toddlers and almost killed the country's fifth-largest hamburger chain.

Herrick, who lives in Westlake Village, was also a partner in ten Seattle Jack in the Boxes at the time. It was a Sunday in January. Herrick was having a family evening when he got a surprise call from his Seattle partner. "You could hear the terror in his voice." Herrick remembers. He said that the 300 or so food poisoning cases reported in the previous week were linked to undercooked beef at the hamburger chain's shops in the Pacific Northwest -- including Herrick's restaurants in Seattle. "Frankly, at first, I didn't grasp how serious would be the impact. Then the first child died. It was just horrendous. By Wednesday, the Agoura store had just emptied out. By the end of the week, sales were down more than 80 percent. We had no customers in Seattle. My life, my business career, was going down the toilet. I was scared to death."

Herrick and Jack in the Box not only survived this horrific crisis; they have since experienced an unprecedented revival. What makes this story unique, however, is not the company's crisis-management tactics, but how it transformed this devastating crisis into an opportunity to remake its entire corporate culture and reawaken a near-comatose brand. Jack in the Box is now considered an industry leader in safety and health procedures, not because of great spin control, but as a result of changes throughout the company.

In fact, Jack in the Box, then called Foodmaker, initially did not handle the public relations crisis very well. It took two days after the health department had traced the bad meat to a Foodmaker supplier before the company addressed the public and had removed all meat from its restaurants. "Consumers don't want to see any delay or apprehension," says Steve Albrecht, a San Diego expert on corporate crisis management. "Jack in the Box officials did not take immediate decisive action to shut down all the stores for a few days and teach employees how to properly grill hamburgers."

What was impressive, however -- and what distinguishes Jack in the Box from other food company's who have faced similar crises --was what went on behind the scenes. Jack and the Box executives were genuinely horrified, which compensated for their lack of PR skills.  Unlike the juice company Odwalla that had its own E. coli poisoning crisis in 1996, it did not use the potential legal liability arising from the incident as a shield. One plaintiff's lawyers later told reporters that the company's executives had cried during a deposition. And unlike Odwalla which offered lip service about taking responsibility but tried for years to hide documents that showed that the poisonings resulted from shoddy internal controls, Jack in the Box instituted a state-of-the-art food handling system.

Within days of the outbreak, Jack in the Box called microbiologist  David Theno and begged him to give up his own business in food research to become vice president of quality assurance and product safety. He accepted and began to build the fast food industry's first Hazard Analysis Critical Control Points (HACCP) program, which attempts to ensure the safety of food at every point at which bacterial contamination can occur.

Food bacteria are far more common than most people realize. "We begin with our suppliers," Thelmo says. If a supplier's products test positive for bacteria more than once, the supplier is dropped. Every day, restaurant management tests cooking systems, including cooking sample products. There are weekly inspections. As a final step, each and every cooked patty is individually checked visually by an internally certified employee before it can be removed from a grill."

"Within a few weeks, we had an entire new food cooking system in place," recalls Herrick. "It wasn't just for show. We used to pick up hamburger patties and put them on the grill; we began to use sanitized tongs. I remember some franchisee owners thought we were going overboard. But these changes had less to do about cost than culture. Everything is different now, from the responsibility we expect of our employees to our respect for our vendors. It's a different mindset. I think everyone, and I mean everyone, realizes that we needed to overhaul our procedures but more importantly how we thought about our customers."

Nevertheless, the swift internal changes could not stem the devastation of Jack in the Box's reputation. Over the next two years, Foodmaker lost $138 million and Moody's downgraded its debt to junk bond status. But Jack in the Box stood by its franchisees, extending credit terms and in the case of Herrick, buying out his Seattle franchisees in the epicenter of the crisis that faced a steep recovery curve.

Another key to the turnaround was the humanizing of the chain by resurrecting the "Jack" icon and literally blowing up the company's culture -- the first Jack ads by Los Angeles-based Chiat/Day showed Jack dynamiting company headquarters. It was a necessary transformation that has paid enormous dividends. "Laws do not make food safe," adds Theno. "Companies make it happen with extra focus and effort."

Although it took almost two years before Herrick's sales recovered to pre-poisoning levels, he's now experiencing his most profitable run ever. He's since added three stores in Camarillo and another in Oxnard, and he's a partner in 18 more in Los Angeles and Phoenix. "It's like a whole new company," he says. "Jack in the Box has a new culture, a new self-image. And our customers know it."