October 16, 2011 original date
Often times a crisis is embedded with a larger context that has significant effect on how the crisis is perceived by stakeholders. Remember how Coca-Cola failed to consider the past food safety issues in Europe during its problem in Belgium. This case illustrates how a simple labeling error by an employee became a rather serious crisis for Walmart in China. At other times this might just have been an incident or a paracrisis because there was no public health risk from the mislabeling. However, the context of past actions by Walmart and food safety issues in China, it became a crisis.
Employees of a Walmart in Chongqing, China were accused of mislabeling pork as organic. The pork was not organic and should not have been considered “green.” Two employees were arrested, another 25 detained, and seven confined to their homes. A total of 13 Wal-Mart stores were temporarily closed in the area. Walmart opened stores in Chongqing in 2006 (Wal-Mart has been in China since 1996) and has been 21 times in that area for selling uninspected or expired food and false advertising. As one analysts observed: “Wal-Mart has a record of other incidents related to its credibility in China and not in Chongqing alone. The latest incidents added even more pressure on Wal- Mart and drive consumers to its competitors.”
Walmart has been fined 3.65 million yuan for ($574,000) for the mislabeling. That is five times the value of the mislabeled pork that was sold. This may seem like an extreme reaction for mislabeling pork as organic. However, this crisis is set against the backdrop of some very serious food scandals in China including banned additives in pork, dyed buns, hormone injected watermelons that exploded, and the melamine-tainted dairy products in 2008 that killed six children. Walmart is not responsible for any of those problems but the number and severity of the tainted food concerns has raised food safety as a “hot” issue in China. Western firms have come under very close scrutiny over food issues due to this increased government vigilance. Some claim even closer scrutiny that Chinese firms:
“Foreign supermarkets get targeted more for this,” said Paul French, founder of Shanghai-based market research company Access Asia. “I am sure Chinese supermarkets do it too but they have a level of protection at the moment from the government that does not want too many scandals among local food-related companies after the bad formula, tainted milk and endless scandals.”
The Chinese consumer market is massive. Walmart wants to be a part of that market to increase its profits. However, Wal-Mart faces strong competition from other competitors including China’s Sun Art, China Resources Enterprise, Tesco (UK brand), Metro (German brand), and Carrefour (French brand). Wal-Mart is second in Chinese market share but Carrefour is close behind. Mis-steps such as the pork scandal could allow Carrefour and others to overtake Wal-Mart in China.
Here is Walmart’s initial statement on the situation:
SHENZHEN, China—Walmart China issued a statement regarding recent store closures in China. The company was ordered to close several stores in Chongqing because of the mislabeling of pork products. The Chongqing Administration of Industry and Commerce says Walmart mislabeled regular pork as “green,” or organic, pork.
The statement follows:
“We were officially directed earlier today by the Chongqing Administration of Industry and Commerce (AIC) to temporarily close some of our stores in Chongqing for a period of 15 days.
We believe the closure has come about as a result of a recent investigation in some of our stores in Chongqing due to the “green pork” incident by which the rights of consumers were infringed.
We have fully cooperated with the investigation and focused upon the fastest implementation of corrections suggested by the local AIC. Some Walmart associates have been detained by the Chongqing Public Security Bureau (PSB). Walmart China is cooperating fully with the PSB and doing everything possible to conclude the investigation.
A taskforce from Walmart China headquarters was sent to Chongqing to work closely with the respective stores and the local officials of the AIC immediately after notification of the investigation several days ago. They are leading the Walmart commitment to ensuring our stores in Chongqing follow Walmart’s strict inspection and management policies and taking all necessary steps to ensure this does not recur. Walmart is committed to protecting the rights of consumers and will spare no efforts in this regard.
The closure of the stores in Chongqing for the next 15 days will allow us time to focus on implementing corrective actions.
Walmart is an important part of the Chongqing community, and we care deeply about the well being of the community with over 3000 of our own associates living and working in Chongqing. We are deeply sorry for the inconvenience this may cause our customers and are even more determined to meet the service expectations they have of us.”
Questions to Consider
- Based upon SCCT, what type of crisis is Walmart facing in China? What evidence lead you to that conclusion?
- Based upon SCCT, evaluate Walmart’s initial crisis response. Did it fit with the prescriptions from SCCT? Why or why not?
- Does it matter that Western brands get closer scrutiny about food safety in China that local brands?
- What impact will Walmart’s past violations have on the current crisis and why?
- What other advice would you give Walmart about responding to this crisis and why?
- What makes this situation a crisis for Walmart? For consumers in China?
- What role might risk communication play in this situation?
- Why might we call this a scandal as well as a crisis?