Capital Investment Advisors

What Companies Can Learn From The LaCroix Scandal

Sparkling water brand LaCroix recently found itself stirred up in quite the hubbub. You probably heard the news reports about a lawsuit alleging that zero calorie, zero additive, zero sweetener LaCroix contains ingredients used in cockroach spray.

While I’m going to address the fallout for LaCroix’s stock, this is not an investment story. This is about one of the biggest public relations misses I’ve ever seen.

I’m an avid LaCroix drinker, and I first heard the roach spray story late last year from my younger sister: “Did you know LaCroix has cockroach pesticide in it?” And then, from my wife: “We aren’t drinking that stuff anymore.” In a heartbeat, my family went from buying two cases of LaCroix a week to zero. The case against LaCroix, in my family’s opinion, was closed.

All of the negative media coverage was based on a class action suit filed in Chicago on behalf of “all those injured by the popular sparkling water brand’s false claims to be ‘all natural’ and ‘100% natural.’” The suit claims testing revealed that LaCroix contains a number of artificial ingredients, including linalool, which is used in cockroach insecticide.

Is that true?

It was hard to tell because LaCroix’s parent company National Beverage Company was surprisingly silent on the matter. National Beverage owns several other drink brands, including Shasta, Faygo, Everfresh, Mr. Pure, and Double Hit. LaCroix is its biggest-name beverage.

As if the lawsuit wasn’t enough to spur National Beverage into action, the resulting bad publicity knocked the company’s stock for a loop. Last week, National Beverage (symbol FIZZ) was down more than 15%. Its value has fallen 50% since September. At its peak, the company had about a $5 billion market cap. It currently hovers around $2.5 billion.

National Beverage also announced last week that they’ve experienced a massive slowdown in sales – last summer they were pacing at $300 million in sales, and that has dropped to $220 million, or a 25% decline. Whew. That stings, especially in light of the fact that they’ve been consistently growing over the past decade.

But here’s the deal. LaCroix isn’t poison, as certain lawyers would have you believe. LaCroix contains natural ingredients called limonene, linalool propionate and linalool; the names may sound synthetic, but all of these compounds come from plants. The lawsuit alleges that these are indeed synthetic (wrong), and that limonene “can cause kidney toxicity and tumors,” linalool propionate “is used to treat cancer,” and linalool (wait for it) is used in cockroach insecticide. Oh boy.

This is all hype with no substance. As University of Minnesota food chemist Gary Reineccius explains, linalool, for instance, is found in many fruits. “It’s a key to blueberries. If blueberry didn’t have it, they would taste totally different,” he says. And while, yes, linalool is added to some pesticides, implying that linalool is insecticide is like saying orange juice is a just as dangerous as drinking paint remover because paint remover contains citric acid. As for linalool propionate, it is as found in ginger, lavender and sage oils.

This information came from a very reputable research article. And herein lies the problem – it didn’t come from National Beverage. Why didn’t the company step up to defend its brand? Especially its number one brand?

You and I both know that in the age of social media, stories can spread like wildfire, whether true or not. So, once the LaCroix story took hold, why didn’t its parent company come in with their own protective campaign? This is the mystery and the place where there was a massive public relations failing. After all, public opinion won’t change unless you put forth some evidence to combat the claims against you. Like, “No, our water does not have roach insecticide in it.” See? Simple.

But National Beverage didn’t respond for months. And when it did, in a letter from Chairman and CEO Nick A. Caporella apologizing for its stock’s poor performance, it sounded like this:

“We are truly sorry for these results… Negligence nor mismanagement nor woeful acts of God were not the reasons – much of this was the result of injustice! Managing a brand is not so different from caring for someone who becomes handicapped. Brands do not see or hear, so they are at the mercy of their owners or care providers who must preserve the dignity and special character that the brand exemplifies. It is important that LaCroix’s true character is not devalued intentionally − in any way. National Beverage Corp. is and will remain the preeminent innovator that adds zest and authenticity to the ‘sparkling water’ phenomenon in North America.”

I have no idea what that means. But I do know that, despite my pleading and waving research papers in both hands, my wife still isn’t buying LaCroix.

Let this be a lesson for any company – mum isn’t the word when it comes to attacks on your brand. You can’t turn the other cheek. You need to turn up the volume.

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