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Judy Maltz: Formula for Tragedy

The 30th anniversary of the Yom Kippur War prompted some heavy-duty soul-searching and revived old debates about how and if this terrible tragedy could have been avoided.

Riding on this wave of Yom Kippur mania, a recent conference sponsored by the Israel Management Institute addressed the following question: "What can managers of today learn from the October 1973 war?"

The timing couldn't have been more appropriate, coinciding with news that a product sold by Remedia, a leading Israeli baby food company, was responsible for the deaths of two infants and nervous system disorders in at least a dozen others. Despite packaging claims to the contrary, Remedia�s recently revamped soy-based formula, produced by the German company Humana Milchunion, lacked vitamin B1, or thiamin, essential for the development of the nervous system.

As the opening speaker at the Management Institute conference noted, a key ele-ment in crisis management -- be it national or corporate -- is reading the handwriting on the wall. In the case of the Yom Kippur war, the handwriting was clear. In the case of Remedia, it now emerges, there were also warning lights. At least one worker in the company allegedly alerted his superiors to the fact that life-sustaining vitamin B1 was missing from the new formula. Police are investigating what else Remedia�s management knew or did not know about alterations in the formula by its German suppliers.

Remedia has until now been one of the three major players in the booming Israeli baby formula market, with an estimated turnover of 350-450 million shekels ($78 million-$100 million) a year. In 1999, 51 percent of Remedia, which also makes baby cereals, biscuits, drinks, bottles and pacifiers, was acquired by U.S. food giant H.J. Heinz.

The thought that the German producers of the formula or the Israeli importers would have removed vitamin B1 from its composition in order to save money -- one of the initial allegations raised during the police investigation into the case -- is undoubtedly horrifying. It is probably, and hopefully, also unsubstantiated, considering that the cost of vitamin B1 is negligible.

Another claim being made is that the German producers believed there was enough vitamin B1 in natural soy to keep babies healthy, and saw no need to supplement the dosage. The thought that people in the business of baby food could be that ignorant about the vital needs of their clients is equally horrifying.

In a baby-obsessed country like Israel, the ramifications of this crisis on the rele-vant market are sure to be far-reaching. The baby formula market had until now been divided between Materna (made locally by Kibbutz Ma�abarot) with 40 percent, Remedia with 33 percent and U.S. import Similac, with 27 percent.

The initial beneficiary of the Remedia crisis was Materna, whose shares on the Tel Aviv Stock Exchange soared 40 percent in the days following outbreak of the news. Materna has apparently decided it can rest on its laurels, postponing the planned launching of a new jumbo package formula, which was supposed to have competed with a similar Remedia product already on the market. Other firms are also starting to see opportunities in the vacuum, with Israeli food giant Osem reportedly considering a move into the baby formula market.

Will Remedia survive this crisis? Initial assessments were that Israeli parents would never forgive a company that endangered their babies� lives, and consequently, it was doomed to be wiped off the map. But as experience with other tragedies has proved, Israelis have very short memories. Recent reports indicate that after a brief consumer boycott, Remedia products (not the soy-based formula, obviously, which has been removed from the shelves) are finding their way into the hands of buyers again.

One thing seems almost certain though: Heinz will not exercise its option to acquire the remaining shares in Remedia from its Israeli partners. Another thing is definitely certain: Breastfeeding in Israel is about to enjoy an unprecedented boom.