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. Last Updated: 07/27/2016

EU Nations Ban Coca-Cola in Health Scare

NEW YORK -- The biggest recall of Coca-Cola products ever is being seen as another public blow for the beverage giant, which has been struggling with declining volume in many regions.

The governments of France, Belgium, Luxembourg and the Netherlands this week ordered products from the Coca-Cola Co. off retail shelves after dozens of people who drank the soft drinks became ill.

The recall affects less than 1 percent of Coke's global sales, but it is another setback for the U.S.-based company, which last year sold $18.8 billion worth of soft drinks around the world.

The moves by the European nations come on the heels of a health scare over food contaminated with dioxin that began in Belgium and spread across the continent. On Sunday, the reverberations from the dioxin scare led to the resignation of Belgian Prime Minister Jean-Luc Dehaene.

Belgium on Monday ordered Coca-Cola to remove all its soft drinks in bottles and cans from stores. Luxembourg followed suit Tuesday. France told Coca-Cola to stop shipping cans and bottles from a plant in Dunkirk, near the Belgian border, where some of the contaminated Cokes originated, and the Netherlands banned all Coke products coming from Belgium. France also informed Coke that it would ask for a recall of all canned Coke products already shipped from the Dunkirk plant.

In Europe, Coke's efforts to buy competing brands like Schweppes and Orangina have hit hurdles repeatedly over the past nine months amid regulatory concerns about market domination. "It's like there's a curse over the continent when it comes to Coke right now,'' said Jennifer Solomon, a beverage stock analyst for Salomon Smith Barney. "It's puzzling, and it's unfortunate.''

In a statement Tuesday, Coca-Cola executives said that problems along two points in its vast bottling system, which is controlled in Belgium by Coca-Cola Enterprises, Coke's largest bottler, led to defects in its products.

Last week, 31 middle school students complained of a bad taste and later became sick with nausea and vomiting after drinking Coke from glass bottles that had been filled at a plant in Antwerp.

Those soft drinks, the statement said, had been bottled using carbon dioxide that was defective and that caused "an off-taste in the bottled product.'' The company said all bottles produced with the defective carbon dioxide, which creates the bubbles in a carbonated soft drink, had been recalled.

But the company insisted that the products were safe to drink. "This issue affects the taste of the soft drinks only,'' it said in the statement.

A second problem arose last Thursday, when people complained of nausea after drinking cans of Coke products bought from vending machines. The cans smelled bad on the outside, and people who opened them and drank the contents became ill. "Everything inside the can was OK, but there was a package-integrity issue,'' said a Coca-Cola spokesman, Rob Baskin. That problem, with reports continuing as recently as Monday, was traced Tuesday to wooden pallets used to ship the cans.

The cans came from a plant in Dunkirk, France, but the problem pallets are used only in Belgium, Baskin said. The wood had been treated with a substance that transmitted what the company called "an offensive odor on the outside bottom of the can.''

Asked to explain why people became sick if the soft drinks were safe, he said: "It may make you feel sick, but it is not harmful.''

"It's the first time in recent memory that we have been asked to withdraw products from an entire marketplace,'' Baskin said. The recall in Belgium and Luxembourg affects all products sold by Coke, including Coca-Cola, Coca-Cola Light, Sprite, Fanta, Nestea, Aquarius sports drinks and Bon Aqua water. Some of those products are affected by the recall in France and the Netherlands.

Belgium has long been an important market for Coke and Coca-Cola Enterprises. The most recent Coca-Cola Enterprises annual report, which devotes an entire page to the company's operations in Belgium, says that Belgians are among the most enthusiastic Coke drinkers in Europe. "Today, per-capita consumption is 260, among the highest in Europe,'' it said. That meas ure, the number of 230-milliliter servings consumed per person per year, is nearly three times that of France, at 96, and well ahead of Germany, at 200.

Michael Bellas, chief executive officer of Beverage Marketing, a trade group in New York, said, "They have a wonderful track record, but this has got to hurt a little bit.'' Coca-Cola's market share in Belgium, he added, is 68 percent, well ahead of the No. 2, Cadbury Schweppes, which has a 4 percent share.

In recent months, Coca-Cola has had its plans to acquire the Orangina brand from Pernod Ricard SA rejected by the French government and an appeals court, although Coke is trying to structure the deal in a way to win approval. And after encountering stiff resistance from the European Union as well as individual countries, Coke scaled back plans announced in December to buy the Cadbury Schweppes PLC brands outside the United States, with the exception of France and South Africa. What had been a $1.85 billion deal was trimmed to $1.1 billion, and now excludes most of the EU countries.

Beverage industry stock analysts said Coke would have to move quickly to control any public relations damage stemming from the recall. "The key issue is quickly resolving this and aggressively communicating to the consumer that safe products are going back on the shelf,'' said Bill Pecoriello, a beverage analyst for Sanford Bernstein, adding that he thought there would be little impact on earnings at Coke unless the problem dragged on.

Belgian authorities have been dealing with the dioxin scare, in which the cancer-causing chemical was found in animal feed in recent months. The discovery led to a ban on poultry, pork, beef, eggs and meat products, both within Belgium and abroad.

While different substances are involved, the Coke recall lengthens the list of groceries that have lost some luster.

"If I had kids at the Coca-Cola-drinking stage, I would be telling them not to drink it out of the can anymore,'' said Steve Ketele, a retired journalist who lives outside Brussels. "But thank God, they are in the wine-drinking stage.''